Marijuana stocks have been a minefield lately, with many of the giants of the cannabis industry having fallen on tough times. The list of major cannabis producers that have lost ground again in 2020 is long, and it's been hard to find consistent winners among pure plays in the pot space.
Yet when you look beyond companies that are actually growing marijuana themselves, there's one company that stands out for its amazing performance. Innovative Industrial Properties (NYSE:IIPR) has become the most famous dividend stock in the cannabis sector, and a recent dividend increase has extended the real estate investment trust's dominant streak of payout boosts in its short four-year history as a publicly traded company.
The latest move from Innovative Industrial
Dividend investors got good news from Innovative Industrial back in June, when the cannabis REIT announced yet another dividend increase. Shareholders who owned stock on June 30 got a July 15 quarterly dividend payment of $1.06 per share. That was up 6% from the previous level of $1 per share.
With the increase, Innovative Industrial boosted its yield as well. Based on current prices, dividend investors are getting around a 4.3% dividend yield from their investment in the marijuana real estate specialist. That's come despite a share price gain of more than 30% so far in 2020.
An amazing streak of dividend success
By itself, there's nothing all that impressive about a 6% dividend increase. Companies across the market make such moves all the time. But when you put the boost into a broader context, it's a lot clearer what Innovative Industrial has managed to put together with its business.
Innovative Industrial paid its first dividend just three years ago, in the second quarter of 2017. The first quarterly payment of $0.15 per share was modest, but it still made the REIT special in the marijuana stock world. Most cannabis companies still pay no dividend, leaving Innovative Industrial as an obvious pick for income investors.
Since then, Innovative Industrial has declared 12 quarterly dividends. Five of those happened to be exactly the same as the previous quarter's payout. However, on seven occasions -- in just three years! -- the cannabis REIT has delivered a dividend increase.
Moreover, most of those increases have been far more significant than its latest incresase. Take a look:
- Innovative Industrial's December 2017 dividend was up 67% to $0.25 per share.
- In September 2018, a 40% increase brought the payout to $0.35 per share.
- March 2019 included a 29% rise to $0.45 per share.
- The very next quarter, in June 2019, shareholders got a 33% boost to $0.60 per share.
- September 2019's payment of $0.78 per share was up another 30% and brought the quarterly streak to two in a row.
- Innovative paid an even $1 per share in December 2019, up 28% from the dividend it distributed three months before.
All in all, Innovative is now paying more than seven times what it did in its first-ever dividend.
Where Innovative is finding all this income
As a real estate investment trust, Innovative Industrial is required to pay out 90% of its net income to shareholders, so it's not surprising to see dividends increasing consistently as the company grows. What's impressive, though, is the pace of that growth, especially during economically challenging times.
However, the nature of Innovative Industrial's business model explains some of the growth. The REIT looks for and purchases suitable properties that it can lease out to tenants, which are typically cannabis cultivators or other companies with operations related to the marijuana industry. Given the difficulty in getting financing right now, most cannabis producers can't afford to purchase greenhouses or other buildings outright. A lease with Innovative Industrial solves their cash flow issues while giving the REIT an opportunity for growth.
Moreover, regulations on cannabis businesses can make real estate transactions more complicated. Working with Innovative Industrial means having an expert in the field that already knows what requirements there are, and the REIT is willing to work with prospective tenants. That's been an invaluable service, and one that Innovative Industrial can profit from.
Expect more growth ahead
Innovative Industrial continues to find lucrative new properties for investment, and it's been successful in raising capital whenever it's needed. That points to a strong future for the marijuana REIT. It also suggests that dividends should continue to be on the rise -- building further on one of the biggest success stories among cannabis stocks .