Innovative Industrial Properties: A 4%+ Dividend Yield and Growth From Cannabis

The cannabis industry continues to grow at an explosive pace. Consumer adoption of marijuana is still in the early stages, though. And full legalization has yet to occur in many states and also at the federal level, so investors have an opportunity to capitalize on the booming marijuana industry. There are hundreds of marijuana stocks to choose from, but investors should be aware that many cannabis stocks are highly speculative. Rather than make risky bets on companies with questionable business models and uncertain outlooks, Innovative Industrial Properties is a way to invest in marijuana while also collecting a dividend payout. Not many marijuana stocks pay dividends. But income investors have a unique opportunity with IIPR, as it is a real estate investment trust with a dividend yield above 4%. Below, we discuss why income investors looking for exposure to the high-growth marijuana industry should consider IIPR. Profit From a Budding Industry The marijuana industry is growing like a weed. Sales of state-regulated cannabis reached over $12 billion in 2019, with lots more room for growth in the years ahead. It is estimated that cannabis sales will increase at a 14% annual rate over the next five years, reaching nearly $30 billion by 2025. This view is backed up by additional research from the ArcView Group, which expects sales of state-regulated cannabis will grow to $31 billion by 2024. If either estimate proves correct, investors will want to pay attention to this budding industry. The growth of the marijuana industry is still in the early stages, as many states have yet to legalize marijuana in some form. Recreational marijuana has been legalized in 11 states, while medicinal marijuana has become legalized in 33 states plus Washington D.C. Because of the high growth potential of the marijuana industry, investors should consider IIPR. Investors are likely familiar with REITs, but many have probably not heard of Innovative Industrial Properties. Whereas the vast majority of REITs own properties across the retail or healthcare industry, IIPR is truly unique as it is one of only a few REITs that owns marijuana properties. IIPR owns specialized properties that are leased to state-licensed operators for their cannabis facilities. IIPR focuses on the medicinal segment of the marijuana industry, which is an advantage right now as medicinal legalization has outpaced that of recreational marijuana across the country. IIPR has a large and diversified property portfolio. As of May 26, IIPR owned 56 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Nevada, North Dakota, Ohio, Pennsylvania and Virginia. Properties totaled over 4 million rentable square feet. Occupancy stood at 99.2% based on square footage, with a weighted-average remaining lease term of approximately 15.9 years. Business conditions remain very strong for IIPR. While the broader U.S. economy is on the verge of recession due to the coronavirus crisis, IIPR has hardly skipped a beat to begin 2020. While many REITs across the U.S. are in deep financial distress due to mass closures of restaurants and retail stores, marijuana dispensaries have been deemed to be essential businesses. This notable distinction is a huge advantage for IIPR, as it has allowed its tenants to remain open for business, even during the nationwide lockdowns that took place earlier this year. Explosive Growth Means Opportunity IIPR posted extremely impressive financial results to start 2020. In the first quarter, revenue increased 210% year over year. Importantly, the bottom line saw explosive growth as well, meaning IIPR generated accretive growth to shareholders. Net income and adjusted Funds From Operation (AFFO) increased by 249% and 236% year over year, respectively. The company continues to raise capital, including a public offering of 3,412,969 shares of common stock in January 2020 resulting in net proceeds of approximately $240 million. More recently, in late May the company announced it would sell an additional 1 million shares of stock in a public offering to raise additional cash. But the capital raises serve a vital purpose for IIPR-to acquire additional properties and continue the company's impressive growth. There is no shortage of attractive investment opportunities for IIPR. From January 1 through May 6, IIPR acquired nine cannabis properties totaling over 1 million rentable square feet. The nine properties are located in Colorado, Florida, Illinois, Massachusetts, Michigan, Ohio and Virginia, and will provide continued growth for IIPR. Attractive Dividend and Growth As the company has registered strong revenue and FFO growth, shareholders have benefited with rising dividends. The company currently pays a quarterly dividend of $1.00 per share, up 122% from the same quarterly dividend payout last year. IIPR maintains a target dividend payout ratio of 75% to 85% of annual AFFO. Therefore, dividend growth is likely to continue at a high rate if the company is successful in growing future revenue and AFFO. Growth will be fueled largely through property acquisitions and rental increases on existing properties, which is likely due to the explosive growth of the marijuana industry. With a current annual dividend payout of $4.00 per share, IIPR stock has a current dividend yield of 4.3%. This is a highly attractive payout for investors interested in generating dividend income. Interest rates remain near zero, and the S&P 500 Index on average yields just 1.9%. As a result, IIPR stock provides more than twice the dividend income of the S&P 500 Index average, along with tantalizing long-term growth potential. Final Thoughts Investors looking for exposure to growth might be looking at the marijuana industry, and rightfully so as legalization of medicinal and recreational marijuana continues to expand. But investors also need to be careful when it comes to marijuana stocks -- many are in dubious financial position and may not survive in the long run. IIPR is well-positioned to capitalize on the explosive growth of the marijuana industry. At the same time, it pays a high dividend yield above 4% thanks to its status as a REIT. Therefore, IIPR is an attractive stock for investors looking for a mix of growth and dividends.

Innovative Industrial Properties: A 4%+ Dividend Yield and Growth From Cannabis

Not many marijuana stocks pay dividends, so income investors have a unique opportunity with this REIT.

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