What are the tax implications for investors holding common versus preferred stock?

Tax treatment – common vs. preferred

Dividends on Digital Realty’s common shares are generally classified as “qualified” dividends, provided the investor holds the stock for the required 61‑day minimum period. Qualified dividends are taxed at the lower long‑term‑capital‑gains rates (0 %, 15 % or 20 % depending on the taxpayer’s ordinary income). By contrast, the quarterly cash dividend on the preferred series is usually treated as non‑qualified (ordinary) dividend or, for many preferred securities, as interest‑like income because the preferred instrument is structured more like a fixed‑rate bond. Ordinary dividend/interest income is taxed at the investor’s marginal ordinary‑income rate, which for most individuals is higher than the qualified‑dividend rate. In addition, preferred‑stock dividends may be subject to state‑income tax in all jurisdictions, while qualified common dividends can sometimes be partially exempt in states that follow the federal treatment.

Trading implications

From a fundamentals standpoint, Digital Realty’s common stock offers a modest, growing dividend with the tax advantage of qualified treatment, making it attractive for tax‑efficient, long‑term investors who also value upside from the data‑center growth narrative. The preferred series, while typically yielding a higher cash rate, carries a tax drag that can erode the after‑tax return, especially for high‑income investors. Technically, the common shares have been trading in a tight range around the 55‑day moving average, suggesting limited upside unless the data‑center demand catalyst breaks out. Preferred shares trade on a flatter curve with lower volatility; the higher yield may compensate for the tax cost, but the price is more sensitive to interest‑rate moves and credit‑spread compression.

Actionable insight

If you are in a higher marginal tax bracket and seek tax‑efficient income, a position in DLR common stock (or a dividend‑growth strategy) is preferable, especially if you can hold for at least 61 days to secure qualified‑dividend status. For investors prioritizing yield over tax efficiency—such as those in lower brackets or tax‑advantaged accounts—a modest allocation to the preferred series can boost cash flow, but be prepared for a higher after‑tax cost and potential interest‑rate exposure. Adjust position size accordingly: overweight common for tax‑efficiency and upside, underweight preferred unless you specifically need the higher current yield and can absorb the ordinary‑income tax impact.