CoreSite Realty Corp: Is This 4.2% Yielder a Growth Stock in Disguise?
This Dividend Stock Looks Interesting
In today’s low-yield environment, CoreSite Realty Corp (NYSE:COR) appears to be a very attractive dividend stock. The company has a quarterly dividend rate of $1.23 per share and a share price of $116.92. That gives COR stock an annual yield of 4.2%.
To put things in perspective, the average dividend yield of all S&P 500 companies stands at just 1.4% at the moment. (Source: “S&P 500 Dividend Yield,” multpl.com, last accessed May 25, 2021.)
That is, CoreSite stock’s yield is three times that of the benchmark’s average.
The company belongs to a sector that’s known for being on the higher end of the yield spectrum: real estate.
CoreSite is structured as a real estate investment trust (REIT). REITs are tax pass-throughs: they pay little to no income tax at the corporate level, provided that they return at least 90% of their profits to investors through dividends.
But there’s more to this than meets the eye. Other than being a generous dividend stock, COR stock also provides solid growth prospects.
You see, while REITs are known for being landlords that own malls, shopping centers, and apartment buildings, CoreSite is in the data center business. The company has 25 operational data centers that total more than 4.6 million square feet. They are located in eight strategic markets across the U.S. (Source: “Q4 2020 Investor Presentation,” CoreSite Realty Corp, last accessed May 25, 2021.)
Although CoreSite may not be a familiar name to consumers, more than 1,375 of the world’s leading enterprises, network operators, cloud providers, and supporting service providers use the company’s data center solutions.
In the era of cloud computing, data centers are in strong demand. And thanks to CoreSite’s unique focus, its business has been booming. Just look at how the company’s top line has evolved over the last three years.
In 2018, CoreSite generated $544.4 million of operating revenue. In 2019, the amount grew by 5.2% to $572.7 million. In 2020, the REIT’s operating revenue increased by another six percent to $606.8 million. (Source: “CoreSite Reports Fourth Quarter 2020 Financial Results,” CoreSite Realty Corp, February 4, 2021.)
Keep in mind that, due to impacts from the COVID-19 pandemic, 2020 turned out to be an extremely challenging year for most commercial real estate owners. But as a data center REIT, CoreSite had no problem continuing its growth momentum.
And this year, things have turned out to be even better.
According to the company’s latest earnings report, CoreSite generated $157.6 million of operating revenue in the first quarter of 2021. The amount represented a seven-percent increase year-over-year and a 1.7% increase sequentially. (Source: “CoreSite Reports First Quarter 2021 Financial Results,” CoreSite Realty Corp, April 29, 2021.)
Instead of net income, the most critical operating metric for REITs is arguably funds from operations, because this measure often tells investors how much cash a REIT can return to investors in the form of dividends.
In the first quarter of this year, CoreSite’s funds from operations came in at $1.40 per share, which marked an 8.5% increase year-over-year and a 4.5% increase sequentially.
Note that the amount easily covered the company’s cash dividend of $1.23 per share declared and paid for the quarter.
As a matter of fact, because of the growth in CoreSite’s business, it managed to pay not only a steady dividend, but an increasing one. When the company completed its initial public offering (IPO) in 2010, it had a quarterly dividend rate of $0.13 per share. In other words, the per-share payout of CoreSite stock has increased by 846% since its listing on the New York Stock Exchange. (Source: “Dividend History,” CoreSite Realty Corp, last accessed May 25, 2021.)
I don’t expect that streak to end anytime soon.
According to management’s guidance, CoreSite is expected to generate $642.0 to $652.0 million of operating revenue and $5.42 to $5.52 per share of funds from operations in full-year 2021. At the midpoint of that guidance range, the company would achieve a 6.6% increase in operating revenue and a three-percent increase in funds from operations per share compared to 2020. (Source: “Earnings Release and Supplemental Information: Quarter Ended March 31, 2021,” CoreSite Realty Corp, last accessed May 25, 2021.)
Bottom Line on CoreSite Realty Corp
At the end of the day, there are many ways to invest in the fast-growing cloud sector.
But if it’s income you’re after, CoreSite Realty Corp, a 4.2%-yielding data center REIT, should be one of the top names to consider.