Technology

RBC Out With Top Data Center Dividend Picks for 2017

Lee Jackson

Published: December 20, 2016 9:50 am

Last Updated: January 12, 2020 4:36 pm

If any area in the market has strong growth potential for 2017 and beyond it is the data centers, and with good reason. With cloud computing and storage skyrocketing, and demand for streaming video and audio growing exponentially, the prospects for the top companies in the sector continue to remain bright. Toss in the fact that almost all the top companies pay dividends, and the total return prospects are outstanding.

A new RBC research report notes that the firm’s research indicates demand is currently slightly more broad-based, as opposed to earlier this year. It also points to the narrowing spread between the companies in RBC’s universe and the S&P 500 as a positive for investors. Four companies are listed as top picks, and all are rated Outperform at RBC.

CoreSite Realty

This company offers among the highest payout to investors in the group. CoreSite Realty Corp. (NYSE: COR) delivers secure, reliable, high-performance data center and interconnection solutions to a growing customer ecosystem across eight key North American markets. More than 900 of the world’s leading enterprises, network operators, cloud providers and supporting service providers choose CoreSite to connect, protect and optimize their performance-sensitive data, applications and computing workloads.

CoreSite’s scalable, flexible solutions and more than 350 dedicated employees consistently deliver unmatched data center options — all of which leads to a best-in-class customer experience and lasting relationships.

CoreSite investors receive a very generous 4.08% distribution. The RBC price target for the stock is $90. The Wall Street consensus price target is $86.55. Shares closed Monday at $78.65.

CyrusOne

Another top pick among the data center stocks, CyrusOne Inc. (NASDAQ: CONE) designs, builds and operates facilities across the United States, Europe and Asia that give its customers the flexibility and scale to match their specific growth needs. Specializing in highly reliable enterprise-class, carrier-neutral data center properties, the company provides robust data center infrastructure to ensure the continued operation of IT equipment for a rapidly growing list of organizations that now nears 900, including nine of the Fortune 20 and more than 160 of the Fortune 1,000 or equivalent-sized companies.

Many analysts feel that some of the best returns in the data center sector may be found in the smaller players like CyrusOne. The company trades at numerous lower multiples than its bigger competition, and top analysts feel that the discount valuation is not warranted given the recent surge in leasing and above-average growth. The company also has exhibited faster deployment times, rapid new market expansion and low churn among customers, all bullish reasons for buying the stock.

CyrusOne unitholders receive a 3.41% distribution. RBC has a $57 price target, and the consensus target is $54.20. The shares closed Monday at $44.72.

Equinix

This is one of the larger cap companies in the sector, and a top play for more conservative accounts. Equinix (NASDAQ: EQIX) provides data center services to protect and connect the information assets for the enterprises, financial services companies, and content and network providers primarily in the Americas, Europe, the Middle East, Africa and the Asia-Pacific.

The company provides colocation services and related offerings, including operations space, storage space, cabinets and power for customers colocation needs; interconnection services, comprising physical cross connect/direct interconnections, Equinix Internet Exchange, Equinix Cloud Exchange, Equinix Metro Connect and Internet connectivity services; and managed IT infrastructure services, including installation of customer equipment and cabling, as well as equipment rebooting and power cycling, card swapping and emergency equipment replacement services.

In 2013 the company opened the International Business Exchange data center in Osaka. Called OS1, it was the first data center in the western region of Japan. This data center provides a total capacity of 32,000 square feet and more than 800 cabinet equivalents. Partner K-Opticom is one of the largest access providers in Osaka/Kansai area.

Investors receive a 1.97% distribution. The whopping $429 RBC price target compares with the consensus price objective of $408.68. The shares closed at $354.49.

Interxion

This company pays no distribution but is a top play for investors looking for European exposure. Interxion Holding N.V. (NYSE: INXN) builds and operates 39 carrier-neutral data centers in 11 countries across Europe, spanning nearly 100,000 square meters. The company services approximately 1,500 customers, consisting of network providers, managed service providers, financial services companies, digital media and distribution companies, and enterprises.

With over 600 connectivity providers, 21 European Internet exchanges and most leading cloud and digital media platforms across its footprint, Interxion has created connectivity, cloud, content and finance hubs that foster growing customer communities of interest.

The consensus price target is $40.77. Interxion shares closed trading on Monday at $34.59.

Except for Interxion, these are very solid total return plays in an industry that sees no signs of slowing down. In addition, all have backed up some from highs printed earlier this year and are offering better entry points.