In a booming industry, everyone wants to be a buy-and-hold investor. But the strategy is a lot easier said than done, especially in volatile sectors like pot.
Besides, not everyone can afford to lock their money into stocks and not take out any cash for a long time. That’s one of the reasons some investors sell their shares too early and miss out on a big bull run later on.
Of course, when you have a long position in a company, you can sell covered calls to earn some premium. Then again, if the stock moves to the upside very quickly—which has happened many times in the pot industry—your shares will be called away and you’ll miss out on any upside above the call option’s strike price.
Now, don’t you just wish there was a fast-growing pot stock that could also provide investors with some cash returns?
Well, as it turns out, there is one: Innovative Industrial Properties Inc (NYSE:IIPR).
Make no mistake, even though the name Innovative Industrial Properties sounds like it’s in the real estate business—and the company is structured as a real estate investment trust (REIT)—it’s considered a pot stock.
Innovative Industrial Properties Inc focuses exclusively on the acquisition, ownership, and management of specialized industrial properties leased to experienced, state-licensed medical cannabis operators. To put it simply, the REIT is the landlord of medical cannabis companies.
As of February 24, Innovative Industrial Properties owned 67 properties totaling approximately 5.8 million rentable square feet (including about two million rentable square feet under development/redevelopment). The properties are diversified across 17 states. (Source: “Innovative Industrial Properties Reports Fourth Quarter and Full-Year 2020 Results,” Innovative Industrial Properties Inc, February 24, 2021.)
Founded in 2016, Innovative Industrial Properties is the first and only publicly traded company on the New York Stock Exchange to provide real estate capital to the medical marijuana sector.
Legal cannabis is a nascent industry, and you don’t hear much about the real estate side of the business.
But here’s the thing: while IIPR stock doesn’t get as much investor attention as stocks of companies that grow and sell marijuana, it offers something that’s rarely found in the pot industry: quarterly cash dividends.
That’s right, when a substantial number of cannabis producers are still incurring losses and burning through cash, this pot stock is actually returning cash to investors on a regular basis.
Better yet, the payout has been on the rise. At the beginning of 2018, Innovative Industrial Properties stock had a quarterly dividend rate of $0.25 per share. Today, the amount is $1.24 per share. That’s an increase of 396%! (Source: “Dividend History,” Innovative Industrial Properties Inc, last accessed March 5, 2021.)
At the current share price, IIPR stock’s quarterly payout translates to a 2.7% annual yield.
If you’re wondering whether the company can afford this kind of dividend growth, a look at its financials should be reassuring.
In the fourth quarter of 2020, Innovative Industrial Properties generated $37.1 million of total revenue, marking a 110% increase year-over-year. (Source: Innovative Industrial Properties Inc, February 24, 2021, op. cit.)
Its adjusted funds from operations (AFFO), a critical measure of a REIT’s operating performance, came in at $1.29 per diluted share, which was in excess of the quarterly dividend payment.
In full-year 2020, the company earned $116.9 million in total revenue, up 162% from 2019. Its AFFO per share was $5.00. Considering that Innovative Industrial Properties declared total dividends of $4.47 per share for the year, its AFFO was more than enough to cover the payout.
I should point out that, while owning industrial properties might not be as exciting as, say, growing and selling tens of thousands of pounds of pot, the business is great for generating recurring cash flows. To give you an idea, Innovative Industrial Properties’ portfolio is 100% leased, with a weighted average remaining lease term of more than 16 years.
It’s also worth noting that Innovative Industrial Properties provides real estate capital to some of the leading players in the U.S. medical cannabis industry.
The company’s tenants include Trulieve Cannabis Corp (CNSX:TRUL, OTCMKTS:TCNNF), Green Thumb Industries Inc (CNSX:GTII, OTCMKTS:GTBIF), and Curaleaf Holdings Inc (CNSX:CURA, OTCMKTS:CURLF). (Source: “Our Portfolio,” Innovative Industrial Properties Inc, last accessed March 5, 2021.)
Combining a perfect occupancy rate, a high-quality tenant base, and long-term lease agreements, Innovative Industrial Properties stock is well positioned to keep returning cash to investors.
Innovative Industrial Properties Inc (NYSE:IIPR) Stock Chart
Chart courtesy of StockCharts.com
As I mentioned at the beginning, one of the challenges for buy-and-hold investors is the need to sell a part of their position (often too early) for some cash.
Well, Innovative Industrial Properties Inc’s growing cash dividends can address that challenge and allow more investors to hold on to their shares.
Investors who’ve held on to IIPR stock for the long term are probably glad that they’ve done so. In just the last three years, Innovative Industrial Properties stock has delivered a total return of more than 700%.
As the U.S. medical cannabis industry continues to prosper, further returns could be on the horizon for investors of this unique pot stock.