A Top Marijuana Stock You Likely Haven’t Considered
“Jing, did I miss the boat on marijuana stocks?” my neighbor Larry asked me at a party last month.
Larry is not alone. After seeing how high weed stocks skyrocketed earlier this year, everyone wanted a piece of the action. But then the U.S. stock market experienced a major pullback and marijuana stocks have taken some serious losses in recent weeks.
Have we hit a bottom yet? At this point, even the most bullish weed stock investors may be having second thoughts about putting their money in the cannabis industry again.
Also, given the still-bloated valuations of many marijuana companies, people are wondering whether they are too late to get on the profit train.
That’s why today I want to show you a way to make money from the marijuana industry with certainty.
In particular, I’m looking at Innovative Industrial Properties Inc (NYSE:IIPR), a real estate investment trust (REIT) headquartered in San Diego, California.
Now, you are probably wondering how a real estate company can be considered a play in the marijuana boom.
Well, that’s because, while IIPR does not grow or sell weed products, the company has established itself as a leading provider of real estate capital for the medical-use cannabis industry.
Innovative Industrial Properties Inc
Innovative Industrial Properties Inc’s strategy is very easy to understand. The company acquires existing, redeveloped, and underdevelopment industrial buildings, including greenhouse facilities.
The properties are rented out through triple-net long-term leases, meaning the operating tenants, rather than the landlord, are responsible for paying the property taxes, maintenance expenses, and insurance premiums.
Furthermore, management targets properties that would provide initial yields in the mid-teens. And the lease contracts usually have annual rent escalators of three to four percent. So, over time, the company’s rental income would increase naturally.
IIPR’s portfolio currently consists of 10 properties, totaling approximately 952,000 rentable square feet (including approximately 114,000 rentable square feet under development). (Source: “Our Portfolio,” Innovative Industrial Properties Inc, last accessed November 20, 2018.)
These properties are in Arizona, Colorado, Maryland, Massachusetts, Michigan, Minnesota, New York, and Pennsylvania.
Being a landlord might seem like a boring business. But this marijuana-focused REIT has churned out some very impressive growth metrics. Just take a look at the company’s latest earnings report and you’ll see what I mean.
In the third quarter of 2018, Innovative Industrial Properties Inc generated $3.9 million of total revenue, marking a 150% increase year-over-year. Adjusted funds from operations, a critical measure of a REIT’s performance, came in at $0.38 per share, up 81% from the year-ago period. (Source: “Innovative Industrial Properties Reports Third Quarter 2018 Results,” Innovative Industrial Properties Inc, November 7, 2018.)
By capitalizing on the fast-growing medical marijuana industry, IIPR stock has gotten quite a bit of attention from investors. In just the last 12 months, the company’s shares skyrocketed 179%.
Innovative Industrial Properties Inc Stock Chart
Chart courtesy of StockCharts.com
Of course, past performance does not guarantee future results. As we have seen lately, the hottest marijuana stocks might take the biggest hits when sentiment changes.
The good news is, other than its stock price appreciation, Innovative Industrial Properties Inc offers a more surefire way for its shareholders to earn a return.
And that’s through dividends.
The company currently pays quarterly dividends of $0.35 per share, which comes out to an annual yield of 2.7%.
Note that this return is paid in cash. It doesn’t matter whether the stock goes up or not. When IIPR’s board of directors declares a dividend, shareholders can expect their dividend checks to arrive in the mail.
The best part is, IIPR stock’s dividends have been on the rise.
When the company went public, its first dividend, which was paid in July 2017, amounted to $0.15 per share. Given the $0.35 per share that the company is paying right now, Innovative Industrial Properties’ payout has grown by 133%. (Source: “Dividend History,” Innovative Industrial Properties Inc, last accessed November 19, 2018.)
The company is well positioned to continue paying dividends to shareholders. As of November 7, IIPR’s properties were 100% leased, with a weighted average remaining lease term of 14.7 years.
As a REIT, Innovative Industrial Properties Inc is required to distribute at least 90% of its profits to investors through dividends. Given the perfect occupancy rate and long lease terms remaining for its properties, IIPR should have no problem returning cash to shareholders for years to come.
In this day and age, earnings can be adjusted, but dividends are still cold hard cash paid to investors. No matter what kind of accounting tricks management chooses to use, they can’t create cash out of thin air.
In other words, dividends represent a sign of strength. With marijuana stocks being volatile in a challenging market environment, IIPR stock’s cash return looks quite appealing.