Innovative Industrial Properties Inc: Perfect High-Yield Pot Stock for Income & Growth?
November 12, 2021
IIPR Stock’s Dividend Rises Again
What’s better than a high-yield dividend stock? A high-yield dividend stock with aggressive share-price growth.
And that’s exactly what you get with Innovative Industrial Properties Inc (NYSE:IIPR).
In fact, Innovative Industrial Properties stock could be one of the best income and growth stocks out there. It’s a real estate investment trust (REIT) I’ve been following for a while now. The last time I wrote about IIPR stock was on July 1. A lot has changed since then.
At the time, Innovative Industrial Properties stock was trading at $191.00 per share and it paid a quarterly dividend of $1.40 per share.
As of this writing, IIPR stock is trading hands at $282.64 per share. That represents a short-term gain of 48%. Over the same time frame, the S&P 500 has rallied by nine percent and the AdvisorShares Pure US Cannabis ETF (NYSE:MSOS) has gone down by roughly 25%.
Innovative Industrial Properties stock is up by :
- 25% over the last six months
- 60% year-to-date
- 100% year-over-year
- 647% since bottoming in March 2020
What about IIPR stock’s dividend? It’s rock solid. On September 15, the company’s board of directors declared a third-quarter dividend of $1.50 per share, for a yield of 2.2%. (Source: “Innovative Industrial Properties Declares Third Quarter 2021 Dividends,” Innovative Industrial Properties Inc, September 15, 2021.)
That’s a seven-percent increase over the second-quarter 2021 dividend of $1.40 and a 28% increase over the third-quarter 2020 dividend of $1.17 per share.
Best of all, it’s the 12th dividend increase since Innovative Industrial Properties completed its initial public offering in December 2016. It’s also the seventh consecutive quarter that the company has raised its payout.
Since Innovative Industrial Properties stock started paying dividends in the second quarter of 2017 ($0.15 per unit), its payout has rocketed by 900%. (Source: “Dividend History,” Innovative Industrial Properties Inc, last accessed November 10, 2021.)
These stock-market gains and dividend increases have resulted in exceptional long-term growth. Over the last three years, with dividends reinvested, Innovative IIPR stock has soared by 1,549%.
Chart courtesy of StockCharts.com
Why are investors so excited about Innovative Industrial Properties stock?
It keeps getting bigger and better.
Innovative Industrial Properties is the first company traded on the New York Stock Exchange (NYSE) to provide real estate capital to the medical marijuana industry. The REIT purchases land from experienced licensed medical marijuana growers and leases that land back to them. (Source: “Our Business,” Innovative Industrial Properties Inc, last accessed November 11, 2021.)
Why would a cannabis company do that?
Since marijuana is still illegal in the U.S. at the federal level, it’s difficult for marijuana companies to find capital. That’s where Innovative Industrial Properties comes in. By buying properties from medical marijuana growers, the REIT provides them with capital to develop their operations.
Innovative Industrial Properties Inc targets well-funded medical cannabis companies in the $5.0–$30.0 million range and signs them up to long-term leases of 10 to 20 years. The initial base rent is 10% to 16% on total investment. And, like all good landlords, the REIT increases its annual rent by three percent to 4.5%, providing it with a steady, reliable cash flow.
By the look of things, there are a lot of medical marijuana operators that need cash to help fund their operations. At the start of 2020, Innovative Industrial Properties Inc’s portfolio consisted of 47 properties. Today, that number stands at 76.
Three of Innovative Industrial Partners’ top tenants are Cresco Labs Inc (CNSX:CL, OTCMKTS:CRLBF), Trulieve Cannabis Corp (CNSX:TRUL, OTCMKTS:TCNNF), and Green Thumbs Industries Inc (CNSX:GTII, OTCMKTS:GTBIF).
On October 18, the company closed on the $15.0-million acquisition of a 201,000-square-foot property in Desert Hot Springs, CA and entered a long-term lease with Gold Flora, LLC. (Source: “Innovative Industrial Properties Acquires Property in California and Executes Long-Term Lease With Gold Flora,” Innovative Industrial Properties Inc, October 18, 2021.)
It’s expected that Gold Flora will complete additional improvements to the property as a regulated cannabis cultivation and processing facility, for which Innovative Industrial Partners has agreed to provide reimbursement of up to $9.0 million. Assuming full reimbursement for the tenant improvements, Innovative Industrial Partners Inc’s total investment in the property is expected to be $60.0 million.
Another Great Quarter for Innovative Industrial Properties Inc
The large number of cash-strapped cannabis companies means that Innovative Industrial Properties’ strong financial results will likely continue. For the third quarter ended September 30, the REIT announced that its revenue increased by 57% year-over-year to $53.9 million. (Source: “Innovative Industrial Properties Reports Third Quarter 2021 Results,” Innovative Industrial Properties Inc, November 3, 2021.)
The company’s net income was $29.8 million, or $1.20 per share, a 57% increase over the third-quarter 2020 net income of $18.8 million, or $0.87 per share. Its adjusted funds from operations (AFFO) were $45.0 million, or $1.71 per share, a 62% increase over the third-quarter 2020 AFFO of $27.8 million, or $1.28 per share.
That’s more than enough to cover the company’s quarterly dividend of $1.50 per share.
Innovative Industrial Properties Inc ended the third quarter with $127.3 million in cash and cash equivalents and about $554.4 million in short-term investments, totaling approximately $681.7 million.
Since July 1, the REIT has acquired five properties in California, Illinois, Maryland, Missouri, and New York. It has also executed four lease amendments to provide additional improvements at properties in Illinois, Maryland, Massachusetts, and Michigan.
The Lowdown on Innovative Industrial Properties Stock
For investors who are looking for income and growth, it would be tough to find a better dividend stock than IIPR stock.
Innovative Industrial Properties Inc is the only NYSE-listed REIT that invests in the medical cannabis industry. It has a solid balance sheet and an aggressive acquisition strategy. All that helps the company report robust financial results, high-yield dividends, and market-trouncing share-price gains.
