Since its launch in February 1971, the Nasdaq Stock Exchange has grown to include more than 3,000 companies on what is now the largest purely electronic global exchange in the world.
Nasdaq's own embrace of the digital revolution, meanwhile, has helped make this stock exchange the home of many of the world's leading-edge producers of technology-based goods and services, from promising start-ups to the largest publicly traded companies in the U.S.
The Nasdaq Composite index also has become one of the three major indexes that track the U.S. stock market and a useful benchmark by which to compare an individual component's performance. And by that measure, data center operator Equinix (EQIX +1.42%) has held its own while providing a reliable stream of dividend income along the way, and building one of the largest digital infrastructure operations in the world.
EQIX Total Return Level data by YCharts.
Consistently growing a portfolio and payouts
The Redwood City, Calif-based company has kept pace with the Nasdaq Composite on a total-return basis since it went public in August 2000. Over that time, Equinix has grown its portfolio to more than 250 data centers in 71 metropolitan areas on six continents. Those centers provide interconnectivity to more than 10,000 customers, including more than 260 members of the Fortune 500, the company says.
Enterprises large and small rely on Equinix to keep them connected to the cloud, and they in turn have powered it to more than two decades of revenue growth.
Equinix only became a REIT at the beginning of 2015. Since then, it has consistently outperformed the Nasdaq Composite not only in total return, but in yield and dividend payouts. It has reliably met its obligation as a real estate investment trust (REIT) to pay out at least 90% of its taxable income each year to shareholders in the form of dividends. The chart below shows the REIT's yield and quarterly dividend growth compared to a benchmark exchange-traded fund, the Fidelity Nasdaq Composite ETF, since that conversion to a REIT.
EQIX Dividend Yield data by YCharts.
Guiding the way to more dividend growth
In the company's second-quarter earnings report, management said it was guiding for 2023 total adjusted funds from operations (FFO) of $31.51 per share to $32.15 per share, up 7% to 9% from 2022, and for revenue to jump by 14% to 15% to between $8.171 billion and $8.251 billion.
FFO is a key metric of a REIT's profitability, including its ability to pay dividends. Equinix's annualized dividend of $13.64 per share is well below its adjusted FFO figure of about $32 a share. And the company's payout ratio based on cash flow is only about 51%. That points to the company's ability to continue its streak of eight years of dividend increases.
NASDAQ: EQIX
Key Data Points
A tough year and continuing tailwinds
It's been a rough year for the REIT sector in general as high interest rates have made the cost of financing growth a lot more expensive than it was in years past. But this data center REIT is continuing to grow, most recently expanding in India and entering new markets in Southeast Asia. It has also announced plans to expand its access to the Southern Cross NEXT undersea cable system, providing a new direct link between the U.S., Australia, and New Zealand.
Demand for its services from nearly every industry also should continue to drive revenue growth. As Equinix President and CEO Charles Meyers said in its Q2 earnings report: "By 2026, IDC is forecasting that 40% of revenue from G2000 companies will come from digital products, services and experiences, a dynamic that is reshaping the basis of competition in nearly every industry, and making digital an unprecedented force for economic growth." His company is nicely positioned to take advantage of those tailwinds.
So will Equinix continue to outperform the Nasdaq? That depends as much on the Nasdaq itself as it does on Equinix. But with a powerful position in such a seminal sector of economic activity now and going forward, there's reason to believe the company could do just fine.
