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Investing in quality dividend stocks allows investors to create a passive income stream at a low cost. As these payouts are not guaranteed, it's important to identify companies that generate stable cash flows across market cycles, while maintaining a sustainable payout ratio.
Here are two high-quality, high-yield dividend stocks you can hold for passive income, while also gaining exposure to the high-growth artificial intelligence (AI) industry.
Digital Realty Trust Stock
Digital Realty Trust (DLR) is a real estate investment trust (REIT) that provides data center, colocation, and interconnection solutions. It serves companies operating in verticals such as AI, networks, cloud, digital media, mobile, financial services, healthcare, and gaming. Digital Realty owns and operates 309 data centers in 28 countries. Over the years, it has invested in data centers that serve as essential hubs for data communications in major metro regions.
The global shift towards digitization has allowed Digital Realty to benefit from multiple secular tailwinds in the past decade. Moreover, the exponential growth of data is driving the need for cloud-based solutions and other technology. The costs associated with building and maintaining data center facilities are quite high, so companies such as IBM (IBM), Meta Platforms (META), Oracle (ORCL), and Verizon (VZ) have turned to Digital Realty to offer these solutions.
Valued at $43 billion by market cap, Digital Realty Trust pays shareholders an annualized dividend of $4.88 per share, indicating a forward yield of 3.5%. In the past decade, Digital Realty has grown its funds from operations for FFO by 14% annually, showcasing the resiliency of its cash flows.
In the last 10 years, DLR stock has returned 160% to shareholders. After adjusting for dividends, cumulative returns are closer to 283%. Despite these stellar gains, Digital Realty stock trades about 22% below all-time highs, allowing you to buy the dip.
Out of the 19 analysts covering DLR stock, 10 recommend “strong buy,” one recommends “moderate buy,” seven recommend “hold,” and one recommends “strong sell,” for an average rating of “moderate buy.” The 12-month mean target price for DLR stock is $143, indicating expected upside of about 5% to current levels.
Equinix Stock
Valued at $70 billion by market cap, Equinix (EQIX) is also a data-center-focused REIT. Since April 2014, EQIX stock has returned over 450% to shareholders in dividend-adjusted gains, outpacing the broader markets by a wide margin.
Equinix's growth story is far from over. It expects to invest $3 billion in growth projects each year through 2027, and these investments should translate to higher cash flows. Further, the REIT aims to end 2027 with revenue of $12 billion, up from $8.1 billion in 2023.
Equinix expects to grow its dividends by 10% annually in this period, significantly enhancing the yield-at-cost. In the last nine years, Equinix has raised dividends by 10.8% each year. Currently, the REIT pays $4.26 per share on a quarterly basis, which translates to a forward yield of 2.3%.
Out of the 22 analysts covering EQIX stock, 14 recommend “strong buy,” one recommends “moderate buy,” and seven recommend “hold.” The 12-month mean target price for EQIX stock is $910.42, which is 23.4% higher than the current trading price.
Notably, investment bank UBS included both Digital Realty and Equinix in its list of highest-conviction AI equity ideas for the next six to 24 months. UBS has a $143 price target for DLR, in line with the consensus, and a $900 price target for EQIX - about 21.9% above current prices.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
