It's no secret that marijuana stocks have drawn the attention of many interested investors. With the rising acceptance of cannabis for its medicinal properties as well as its recreational appeal, cultivators are working hard to boost their production capacity in order to take advantage of newly legal markets in key jurisdictions across the globe. Along the way, the share prices of those marijuana growers have seen impressive gains, especially at the beginning of 2019.

However, Innovative Industrial Properties (NYSE:IIPR) has taken a different path to pot profits. Rather than growing marijuana itself, Innovative Industrial offers real estate suitable for cannabis production to would-be tenants. Given the rising demand for cannabis, Innovative Industrial has done a good job of building up a portfolio of properties to help its grower-tenants, and the real estate investment trust not only has been profitable but has shared those profits with shareholders through generous and growing dividends. The REIT just announced its latest dividend boost, and investors are happier than ever about the apparent success that Innovative Industrial has had.

A cannabis leaf on top of a pile of $100 bills.

Image source: Getty Images.

How this marijuana stock pays dividends at all

Innovative Industrial Properties pays shareholders quarterly dividend payments for two primary reasons. First of all, the company is able to generate positive funds from operations by purchasing real estate and then leasing it out to tenants. The REIT's business model allows it either to buy properties on the open market with particular tenants in mind or to purchase the real estate that existing cannabis producers already own and then lease it back to them. This second method can be attractive to the growers, because it frees up the capital that they locked up purchasing a facility outright.

In addition, because Innovative Industrial is structured as a real estate investment trust, it enjoys tax advantages that include not having to pay corporate income taxes. However, in order to get those benefits, Innovative Industrial is required to pay out 90% of its profits to its shareholders in the form of dividends.

The latest increase for Innovative Industrial dividend investors

This morning, Innovative Industrial announced that it had boosted its quarterly payout to investors to $0.45 per share. That's $0.10 per share above what it had paid in the previous quarter, and it gives the stock a yield of roughly 2.3%. That's not all that high for an REIT, but given the extent to which Innovative Industrial's shares have skyrocketed lately, it shows that the company has been able to keep pace with growth in its fundamental business.

What's particularly impressive about Innovative Industrial's dividend increase is that it comes so closely on the heels of previous boosts. The latest move follows a $0.10 increase in the quarterly per-share payment last September, and that in turn followed up a $0.10-per-share boost in the fall of 2017. Overall, Innovative Industrial has tripled its payout just since late 2017, reflecting the massive growth in its operations.

Can Innovative Industrial keep up the pace?

The dividend boost only highlights just how well Innovative Industrial has done lately. In 2018, the REIT doubled its portfolio of real estate properties, using capital it successfully raised to finance further acquisitions.

That forward momentum has carried into 2019. Innovative Industrial entered the California marijuana market in January with the purchase of a Sacramento-based grow facility, and legalization efforts across the nation will give the REIT opportunities to expand its footprint to cover more of the U.S. market. As the company gains expertise, Innovative Industrial will build an increasingly valuable competitive advantage that will make potential customers seeking cannabis-appropriate real estate talk to it first rather than larger but less specialized competitors.

Innovative Industrial's dividend increase is a vote of confidence going into its latest earnings report later this week. With so much potential growth, shareholders in the REIT can anticipate that this won't be the last dividend increase that Innovative Industrial will make.