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These Dividend Stocks Are Turning to the Sun to Generate More Income

Motley Fool - Tue Jan 2, 6:47AM CST

Real estate can be a great income-producing investment. Commercial properties tend to produce relatively steady income for their investors as tenants pay rent.

Rent isn't the only income stream a property can produce. Many real estate investment trusts (REITs) are using their roofs to generate even more income by installing solar panels. That's giving them additional income that they can use to support their dividends. Stag Industrial(NYSE: STAG), Prologis(NYSE: PLD), and Extra Space Storage(NYSE: EXR) are among the notable REITs using their roofs to generate solar energy to earn some additional income.

Powering its local communities

Stag Industrial owns 568 warehouses and light manufacturing buildings across 41 states. Those properties have 112 million square feet of rentable space. That space generates rental income to support the industrial REIT's 3.8%-yielding monthly dividend.

While most of Stag Industrial's focus is on renting the space underneath its roofs, the REIT has started looking outside the box by using its roofs to produce more income. It has partnered with several solar developers to install panels on its rooftops. The company and its partners recently completed three new rooftop community solar projects in New Jersey to provide low-cost power to local residents. It now has 16 properties producing over 30 megawatts (MW) of clean power across the country. Most of those projects are community solar projects that benefit local residents.

Solar energy isn't currently a big money-maker for Stag Industrial. The company earned a combined $2.2 million from cash termination fees, solar, and other income in the third quarter (out of $140.7 million of total cash net operating income (NOI)). However, it's just scratching the surface of its solar power potential with over 550 rooftops remaining. It continues to expand its program and has additional roofs under contract and in the development phase. Future projects will provide additional income while supplying low-cost clean power to tenants and the local community.

Supplying essential services

Prologis recently reached a key milestone. The leading industrial REIT has now installed 500 MW of rooftop solar and energy storage capacity across its buildings. That puts it halfway to its ambitious goal of reaching 1 gigawatt of solar and energy storage capacity by 2025. The company currently produces enough power to meet the energy needs of 86,500 U.S. homes.

The REIT has a long growth runway ahead. It has over 1.2 billion square feet of real estate around the world. The company estimates it could eventually add as much as six GW of solar and energy storage capacity in the coming years. Solar will become an even more meaningful income contributor to its results as it adds more capacity.

While Prologis' essentials business (solar, storage, and mobility solutions) doesn't currently generate much income for the REIT, it could become a major income producer in the coming years:

A slide showing the growth potential of Prologis' essentials platform.

Image source: Prologis

The slide shows the company could produce $800 million in annual NOI from its essentials business by 2030. That's meaningful incremental income for a company that generated $5.6 billion in annual NOI over the last 12 months. That would give it more income to push its 2.6%-yielding dividend higher in the coming years.

Using its extra space to generate savings

Extra Space Storage is the largest self-storage REIT. The company has over 3,650 properties with 2.5 million storage units and more than 279 million square feet of rentable space.

The self-storage REIT has been steadily turning its roofs into power plants by installing solar panels. The company currently has panels on 55% of its wholly owned facilities (it wholly owns roughly 1,900 of its locations). Those properties produce about 39.5 gigawatt hours of clean power.

Extra Space Storage has lots of room to grow its solar business. It has invested $19.8 million into solar projects over the past year and has over 100 solar installation projects in the planning, development, and building phases. The company's solar investments reduce the power it pulls from the grid while earning a strong return on its investment to help support the continued growth of its 4.1%-yielding dividend. In addition to installing panels on its remaining wholly owned facilities and those it acquires in the future, the company could expand its platform to joint-venture and managed properties.

Solar-powered dividend growth potential

Several REITs are turning their roofs into power plants by installing solar panels. That's enabling them to generate incremental income or cost savings. While their solar power projects aren't big contributors yet, they could become much more meaningful in the future. Solar could help them generate more income, giving them more money to pay dividends.

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Matthew DiLallo has positions in Prologis and Stag Industrial. The Motley Fool has positions in and recommends Prologis and Stag Industrial. The Motley Fool recommends Extra Space Storage. The Motley Fool has a disclosure policy.

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