Cannabis investors' patience has certainly been tried over the past year. The stocks started 2019 in good shape, but then a vicious bear market in the sector took hold and punished most shareholders. A combination of bad market dynamics and poor decisions by company leaders caused a brutal selloff that has only lately begun to ease.
Despite the selloff, believers in the cannabis industry still want to be involved. One way to do that - and lessen the exposure to the volatility of this industry -- is to get paid to wait. A small group of cannabis stocks actually pays dividends. So, investors can earn some money while they are waiting for the industry to recover. Here are four cannabis stocks that pay dividends:
Innovative Industrial Properties Inc.
Cannabis real estate investment trust Innovative Industrial Properties Inc. (IIPR) , which trades on the New York Stock Exchange, has a forward annual dividend rate of 4.25%, according to Morningstar Inc. The company paid out $2.49 per common stock share for 2019 and $2.25 per 9% Series A Cumulative Redeemable Preferred share. This stock has also had a tremendous start to the year. It began 2020 with the stock selling near $75 and was recently trading at $98. While this is a strong move to the upside, it is still below its 52-week high of $139. IIPR has been able to capitalize on the tight capital issues facing cannabis companies. Many of these companies have sold their real estate assets to IIPR and then leased back the properties.
The latest company to do so was over-the-counter stock Green Thumb Industries (GTBIF) , which sold its Toledo, Ohio, processing facility.
"IIP provides a flexible real estate capital solution that effectively addresses our expansion needs at the processing facility in Toledo," said GTI founder and CEO Ben Kovler.
This was IIP's second transaction with GTI, following a sale-leaseback for GTI's cannabis cultivation and processing facility in Danville, Pennsylvania, completed in November 2019. In January the company announced that it planned to sell 2 million shares of its common stock to raise $150 million. The stock dipped slightly at the time and hasn't looked back since.
The Scotts Miracle-Gro Company
There is a strong argument to be made that Scotts Miracle-Gro (SMG) isn't exactly a pure cannabis company. It is mostly a fertilizer and lawn-related products company. But it has made a big investment in hydroponic indoor growing. It has a forward annual dividend yield of 1.9%, according to Morningstar Inc.
The company's Hawthorne business, which makes hydroponic equipment and indoor growing products, generated double-digit growth in California and Colorado, two the the biggest cannabis markets in the U.S. Emerging cannabis states Michigan and Florida also showed strong growth, said Chief Executive Jim Hagedorn.
Scotts Miracle-Gro has increased its dividend five times on a year-over-year basis over the last five years for an average annual increase of 5.28%. Scotts' payout ratio is 53%, which means it paid out 53% of its trailing 12-month earnings per share as dividend. The current TTM dividend payout for Scotts Miracle-Gro as of Friday is $2.32. The company has paid dividends for the last 13 years.
PerkinElmer
PerkinElmer Inc. isn't the typical cannabis company pick, but the company has targeted the cannabis testing market.
"We have progressed from a relatively nascent business in early 2018 to $26 million in revenue from cannabis testing in 2019," CEO Prahlad R. Singh said in a recent earnings call. He attributed the increase to the company's "efforts to really understand the voice of the customer and provide an end-to-end workflow solution including sample prep, quality and safety testing and analytics capabilities."
Emerald Scientific, a cannabis and hemp lab technology player and testing standard company, has started offering PerkinElmer's cannabis and hemp testing portfolio to their North American customers, added Prahlad.
The forward dividend yield is .28% and typically pays seven cents per share. It has paid dividends since 1965, but doesn't often increase them.
The Cannabis ETF
The Cannabis ETF (THCX) recently declared a dividend of 41.76 cents per share. THCX tracks the Innovation Labs Cannabis Index, a rules-based portfolio that rebalances on a monthly basis. The index consists of 33 cannabis stocks and has $22 million in assets. A large amount of the stocks in the ETF are in the biotech and pharmaceutical category and located in Canada. Options are also available on the ETF, a feature that many private equity investors have used as a hedge for their portfolios.
"The dividend paid by THCX on Jan. 2 was primarily driven by income generated from lending stocks in the portfolio," said portfolio manager Matt Markiewicz. "Despite many cannabis names trading near multi-year lows, appetite to borrow the stocks remains quite strong and lending rates continue to be lofty."
The company's prospectus states, "To generate income for the Fund, the Fund may lend its portfolio securities to broker dealers (including the Fund's custodian) and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the Fund receives liquid collateral equal to at least 102% of the value of the domestic portfolio securities being lent and 105% of the value of the foreign portfolio securities being lent."
Markiewicz added, "The majority of money managers to whom we speak, appreciate the rarity of a growth-oriented fund paying such a robust dividend. As many financial advisors have clients that are looking for income, the yield aspect of THCX checks a box that they may have previously overlooked."
