What happened

Shares of Innovative Industrial Properties (NYSE:IIPR), a provider of creative capital solutions to America's cannabis industry, rose 20.4% in November, according to data from S&P Global Market Intelligence. This fall, the company raised its quarterly dividend payout 40%, and a third-quarter report last month convinced some investors that there will be plenty of raises ahead.

So what 

While cannabis remains illegal under federal law, U.S. cannabis producers, processors, and retailers have a hard time raising capital. Innovative Industrial Properties is a real estate investment trust, which means it makes its money collecting rent from cannabis businesses that can't buy their own buildings, and then passes nearly all of its profits to its shareholders as dividends. Investors piled in following the company's third-quarter report last month, because it looks as if those payouts are going to get a lot bigger.

A man in a suit touches the tallest bar in a rising green-colored graph.

Image source: Getty Images.

A few of Innovative Industrial's buildings were just beginning to collect rent during the third quarter, but adjusted funds from operations still jumped 81% higher than a year earlier to $0.38 per share. The company acquired three of its buildings in the third quarter and as of Nov. 7 had 10 buildings in its burgeoning portfolio, all of which were leased with an average remaining term of 14.7 years.

Now what

Innovative Industrial has already worked annual rent increases into its long-term leases that will allow the company to realize a whopping 15.4% yield on the capital invested in its current properties. All tenants sign triple-net leases that leave them responsible for all of the variable costs that come with building ownership such as taxes and maintenance, which means the stock should be able to deliver a dividend that continues to expand.

At recent prices, the stock offers a less than thrilling 2.8% dividend yield. If Innovative Industrial's leased portfolio keeps growing at its present pace, though, the yield on shares purchased today could reach a double-digit percentage within a few short years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.