Getting Paid Directly from a Pot Stock?
For the most part, if you want to make a cash profit by owning pot stocks in today’s market, you have to wait for their prices to go up, sell some shares, and pocket the difference between the selling price and what you paid. Simply put, you need their prices to go up to make money.
But as we’ve seen plenty of times, stock prices don’t always go up, even for the companies in the exciting cannabis industry. To give you an idea, the North American Marijuana Index actually declined four percent in June, a period when the S&P 500 index climbed to a new all-time high. (Source: “North American Marijuana Index,” The Marijuana Index, last accessed July 18, 2019.)
The neat thing is, during the same month, investors of a particular marijuana stock actually got rewarded with a massive “pay raise.”
That’s right: there was no buying or selling decision involved. If you owned shares of this stock, you would have received a bigger check in June 2019 than you did before.
But wait a second, does that mean this pot stock was mailing out checks to investors on a regular basis?
Exactly. As a matter of fact, the company has been doing that for over two years.
I’m talking about Innovative Industrial Properties Inc (NYSE:IIPR), a company that owns, manages, and acquires specialized industrial properties leased to cannabis producers.
In this day and age, most cannabis companies are trying hard to expand. As a result, they tend to reinvest their profits (if they have any) to ramp up production instead of returning cash to shareholders.
But Innovative Industrial Properties is not the average pot company. Because the company focuses on the real estate side of the business, it can actually generate a predictable stream of cash flow. Since its inception in 2016, the company has been returning cash to investors through regular dividend payments.
And the “pay raise” I was referring to earlier came in the form of a dividend hike.
Innovative Industrial Properties Inc Returns Cash to Investors
On June 14, Innovative Industrial Properties declared a quarterly cash dividend of $0.60 per share.
The amount represented a 33% increase from the company’s prior quarterly payment of $0.45 per share, and a whopping 140% increase from its year-ago quarterly dividend of $0.25 per share. The increased dividend was paid on July 15 to shareholders of record as of June 28. (Source: “Innovative Industrial Properties Declares Second Quarter 2019 Dividends,” Innovative Industrial Properties Inc, June 14, 2019.)
Based on where Innovative Industrial Properties stock is trading at right now, the new quarterly dividend rate translates to an annual yield of 1.9%.
I should point out that this is a cash return that investors get no matter what the stock price is doing. That means, even if the U.S. stock market suddenly enters a downturn and IIPR stock takes a tumble, shareholders of this company can still count on those quarterly cash dividends.
How would that be possible?
Well, it all goes back to the nature of IIPR’s business. Like I said, this is a company focusing on the real estate side of the cannabis industry.
As of June 24, Innovative Industrial Properties Inc’s portfolio consisted of 22 properties totaling almost 1.7 million square feet. These properties are in Arizona, California, Colorado, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Ohio, and Pennsylvania. (Source: “Leading Provider of Real Estate Capital for the Medical-Use Cannabis Industry,” Innovative Industrial Properties Inc, June 26, 2019.)
What is so special about those states? Well, every single one of them has legalized medical marijuana. And that’s how Innovative Industrial Properties has been climbing on board the marijuana profit train: all of the company’s 22 properties are leased to state-licensed medical-use cannabis operators.
Other than boasting 100% occupancy, IIPR’s business also stands out due to the length of its lease agreements.
If you’ve been a residential landlord before, you’d know that you should consider yourself lucky if you find a tenant who’s willing to sign a one-year lease. In marijuana real estate, on the other hand, things can be much more long-term-oriented. The weighted average lease length on IIPR’s properties stands at 15.3 years. (Source: Ibid.)
When it comes to cash flow visibility in the real estate business, few things are better than a perfect occupancy rate paired with an average lease term of over a decade.
A Growing Business
Now, being a landlord is probably not as exciting as growing pot. But here’s the thing: while Innovative Industrial Properties Inc operates on the real estate side of the cannabis business, it still manages to deliver growth rates that would make a marijuana producer feel jealous.
In the first quarter of 2019, Innovative Industrial Properties generated $6.6 million in rental revenue, a 146% increase year-over-year. (Source: “Innovative Industrial Properties Reports First Quarter 2019 Results,” Innovative Industrial Properties Inc, May 8, 2019.)
Adjusted funds from operations, a critical measure of a real estate company’s performance, came in at $5.3 million, marking a staggering 275% increase from the $1.4 million earned in the year-ago period.
Innovative Industrial Properties Stock Chart
Chart courtesy of StockCharts.com
If you need any further convincing that Innovative Industrial Properties Inc is a true marijuana stock, just take a look at the above stock chart. Year-to-date, Innovative Industrial Properties stock has skyrocketed more than 170%.
And because the company is structured as a real estate investment trust, it is required by law to distribute at least 90% of its profits to shareholders in the form of dividends. That means, as Innovative Industrial Properties further grows its business, more “pay raises” are likely on the way for IIPR stock investors.