Most experts would probably agree that your retirement strategy shouldn't be making high-risk investments in hopes of funding your whole retirement on one big winner. Instead, a retirement portfolio should consist of investments with sustainable growth and the ability to provide income during retirement.
To determine whether Equinix (NASDAQ: EQIX) stock is a good fit for a retirement portfolio, we want to determine how likely it is to consistently increase in value over time and what kind of income it will provide during your retirement. To figure this out, we're going to look at the company's expected growth, stability, and dividend payout.
What is Equinix?
Equinix is a data center real estate investment trust (REIT) that develops and invests in real estate that houses servers for data storage for companies across the globe. In fact, Equinix is the largest of the data REITs, with 214 data centers across five continents. It has some of the most advanced cloud computing technologies available, which is why it services nearly 50% of Fortune 500 companies.
Equinix is in a position to continue growing at a healthy pace. Demand for data storage is constantly increasing, especially for data storage that provides speed, security, and reliability while being accessible from all over the world. Equinix has been developing capabilities to meet these needs while maintaining a position to be able to scale fast enough to keep up with demand.
Since 2010, Equinix has grown its portfolio from $2.7 billion in real estate assets to $14.1 billion. Annual revenue has also grown from $1.2 billion to $5.6 billion. The pandemic hasn't slowed it down, either. In Q1 2020, it was up 3.6% from the end of 2019 and up another 1.8% in Q2 2020. For investors, this has resulted in a year-over-year AFFO per share increase of 8.2%.
With 29 major development projects underway across 14 countries, it doesn't appear its growth will be slowing down anytime soon.
Data center REITs are a fairly new concept, and only five companies belong to this category. This makes it difficult to compare long-term growth and stability with its peers.
However, as the company stands now, there's no real reason to think it should face any real troubles. It's maintained a strong balance sheet throughout its growth, maintaining a debt/EBITDA ratio of 4.4 times. It also has very few lease expirations over the next several years -- 71% of its leases don't expire until 2034 or later. With heavy-hitter companies like Google (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), and Microsoft (NASDAQ: MSFT) on its list of data customers, that lease maturity schedule should be pretty safe.
This is the part that may make an investor looking to add dividends to their retirement portfolio cringe. As of this writing, Equinix has a dividend yield of only 1.36%. That's definitely on the low end for a REIT.
Don't write it off too quickly for that, though. Its dividend payout ratio has remained very conservative, ranging from 43% to 46% since 2016. This low payout ratio has allowed it to keep enough cash to continue growing its portfolio without the need for taking on too much debt or selling too many additional shares. This also leaves it a lot of room to increase dividends down the road as new developments and acquisitions begin to slow down.
It has also been increasing its dividend rate consistently each year. For example: