Editor’s Note: I spent a few days last week in Granville, Ohio. It’s a lovely village with a Main Street straight out of a Hallmark Channel movie. The locals are friendly, the sidewalks are clean, and dogs are everywhere.

That’s what I expected to see. But what surprised me was what I saw fifteen miles west of there in New Albany. The pastures and farmland that once dominated the landscape are quickly being converted to gigantic data centers.

The folks in Granville are worried that it may not be long until those concrete structures begin to pop up in their backyards, too. I hope it never comes to that.

No doubt, the world is going to need a lot more data processing capacity. But it also needs the serenity that only an open field of wildflowers can provide, which once gone can never be replaced.

Digital Realty Trust

Speaking of data processing capacity, I’ll be keeping a close eye on real estate investment trust (REIT) Digital Realty Trust (NYSE: DLR) in the weeks to come. The data center operator is scheduled to release its fiscal year 2025 Q2 results on July 24.

Until eight months ago, DLR had been on a tear. After bottoming out below $90 in October 2022, it soared to $198 last November during the stock market rally following the general election.

But since then, it has lost ground. A few days after the White House revealed its “liberation day” reciprocal tariff plan in early April, DLR traded all the way down to $135.

It has rallied since then, rising above $170 by the end of May. Now, it appears to be stuck in a narrow trading range until something happens to reignite its upward momentum.

Mixed Results

I don’t know what it will take to get Wall Street back on board with DLR. Presumably, it was not thrilled with the company’s Q1 results released in late April.

Those numbers included a 2 percent decline in sequential revenue (compared to the previous quarter). Also, its reported net income available to common shareholders fell from 82 cents per share a year ago to 27 cents this year.

That is valid reason for concern but there was some good news, too. During the first quarter, Digital Realty’s reported core funds from operations (FFO), from which dividends are paid, increased by 6 percent on a year-over-year basis.

In addition, the company noted that it “reported a record backlog of $919 million of annualized GAAP base rent at the end of 1Q25.” It also achieved “rental rate increases on renewal leases of 5.6% on a cash basis in 1Q25.”

Cash Calf

No doubt, Digital Realty is in the right place at the right time. It is one of the biggest data center REITs in the world during a time that demand for cloud computing is skyrocketing.

That is both a blessing and a curse. The more money it pays out in dividends, the less money it has to invest in new facilities. Therefore, it must balance the cash flow demands of its shareholders with its need to grow so that it maintains market share.

Six weeks ago, the company’s board of directors approved a cash dividend of $1.22 per common share. On an annualized basis, that equates to a dividend yield of 2.8 percent.

In the world of REITs, that is a low yield. At the start of this week, the 30-year Treasury note was yielding close to 5 percent. By that standard, Digital Realty is more of a cash calf than a cash cow.

Therefore, the rationalization for owning DLR is in the belief that its dividend will grow at a fast enough pace in the future to justify accepting a relatively low yield now. If that does not happen then you’d be better off owning the bond and eliminating the risk that Digital Realty may one day collapse under its own weight.

Tariff Hedge

I don’t see how Digital Realty can materially alter its current path anytime soon. Its projects take years to build and cost hundreds of millions of dollars.

But what could help DLR in the near term is a lower interest rate environment. Not only would that reduce its borrowing costs, but it would also lower bond yields.

I don’t expect the Fed to reduce its policy rate when it meets at the end of this month. However, I do believe that it might do so in September if inflation remains low and the jobs market starts to weaken under the strain of import tariffs.

In that respect, DLR could be viewed as a hedge against any deleterious effects from those tariffs. There aren’t many stocks that would benefit from such a scenario, but Digital Realty is one of the few that might see its share price rise as a result.