You might be frustrated if you have been a shareholder of Data Center REIT Digital Real Estate Trust (DLR 1.85%); the stock has fallen nearly 30% since January, leaving stocks just 10% higher than five years ago.

However, don’t assume that the next five years will look like recent times; here’s why the stock could be a great buy for 2022 and beyond.

The digital lessor

The world is becoming increasingly digital, but data centers, facilities dedicated to hosting massive computing systems, are the physical infrastructure that powers the digital world. Digital Realty Trust is a real estate investment trust (REIT) that owns and manages more than 290 data centers around the world, including Americas, Europe, the Middle East, Africa and the Asia-Pacific region.

It is easier for most companies to outsource the costs and effort of owning data centers. Digital Realty works with over 4,000 clients, including some of the world’s largest companies like Afterpay, AT&Tand Adobe.

Digital Realty is a major player in the field of data centers; it is the seventh largest publicly traded US REIT and one of only two dedicated to data centers.

Why buy in 2022?

The stock has struggled to take off over the past five years; after the current bear market took stocks back toward $120, investors have now waited five years to receive minimal capital gains (not including dividends).

One could see how investor sentiment could deteriorate on Digital Realty; 2022 has been marked by falling stock prices, rising interest rates and fears of a possible recession. These factors do not create an environment conducive to growth in the technology sector; capital could become harder to come by, and the potential for reduced spending and expansion could ripple through Digital Realty due to lower demand for data centers.

However, Digital Realty bookings reached a record $167 million in the first quarter of 2022, signaling strong business momentum. Additionally, you can see below that the company’s cash earnings, known as funds from operations (FFO), have grown significantly, roughly doubling in the last five years.

If you look at the stock’s valuation from a price to FFO perspective, the current ratio is just under 12, despite FFO per share growing at an average of 10% per year since 2005. In other terms, you’re getting a pretty low valuation for a company that’s consistently increasing its profits.

DLR given by Y-Charts.

Don’t overlook the company’s strong dividend. Investors can earn a dividend yield of 3.8% at the current share price, and management has increased the payout for 17 consecutive years. The dividend payout rate is 77% of FFO per share, so there is plenty of room for increases, especially given the steady growth of Digital Realty.

There are probably worse ideas than a cheap stock with a growing and sustainable dividend. But the title’s current struggles could be an even better long-term opportunity.

Reasons to hold on for years beyond

The long-term appeal of Digital Realty is that simple; it’s a big player in a real estate niche that’s likely to see phenomenal growth.

It is estimated that 80% of the world will be online by 2024, and 41% of a typical business’s revenue could come from digital products and services by 2027. A massive shift is underway, where a growing share of the economy is going digital.

But data does not expire; instead, we are constantly creating more over time. The demand for data centers may continue to climb over the years, and you can already see some of that in the tea leaves.

Emerging markets could play a role in growth; Digital Realty has already moved on this, signing a joint venture with Brookfield Infrastructure in India last fall. It also spent $3.5 billion to acquire a majority stake in South African data center company Teraco, expanding its footprint in emerging markets.

Granted, despite these positive hints about what the future may hold, no one can know for sure, and investors will need to watch the company’s execution over the coming quarters. However, the current dividend is well funded, the stock is at a favorable valuation and the future looks bright.

justin pope has no position in the stocks mentioned. The Motley Fool holds positions and recommends Adobe Inc. and Digital Realty Trust. The Motley Fool recommends Brookfield Infra Partners LP Units and Brookfield Infrastructure Partners and recommends the following options: $420 long calls in January 2024 on Adobe Inc. and $430 short calls in January 2024 on Adobe Inc. The Motley Fool has a policy of disclosure.