Over the long term, there are two trends that investors can count on. First, the stock market's major indexes will rise in value over time as operating earnings grow. And second, dividend stocks will run circles around their non-dividend-paying peers.

Back in 2013, Bank of America/Merrill Lynch released a report that looked back at the performance of dividend and non-dividend-paying stocks between 1972 and 2012. Public companies that initiated and grew their payouts over this four-decade stretch delivered average compound annual gains of 9.5%.

Comparatively, public companies that didn't pay a dividend averaged a relatively anemic annual gain of 1.6%. This might not sound like a huge difference, but over a 40-year period, we're talking about a 1,900% outperformance for dividend stocks.

This BofA report really shouldn't come as a shock, considering that dividend stocks are often profitable and have time-tested business models. The same can't be said for businesses that don't pay a dividend.

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The promise and peril of high-yield dividend stocks

The real challenge for income seekers is balancing risk and reward. Investors want the highest yield possible with the least amount of risk, but almost always find that yield and risk are highly correlated. Remember, because yield is simply a function of dividend payout relative to share price, a struggling business with a tumbling share price can look like an income investor's dream, but actually turn out to be an utter nightmare.

Typically, the higher the yield, the slower a business is growing. Slow-growing companies usually need to dangle a carrot to motivate investors to stick around, which is why the likes of AT&T, IBM, and Altria Group are handsomely rewarding their shareholders with yields ranging from 5% to 8%.

But what if I told you that you could have the best of both worlds? Namely, a high-yield dividend and high-powered growth.

Sound too good to be true? Then say hello to Innovative Industrial Properties (NYSE:IIPR), the fastest-growing high-yield dividend stock in the United States.

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Up close and personal with the fastest-growing high-yield dividend stock

Innovative Industrial Properties, or IIP, is a cannabis-focused real estate investment trust (REIT). Just like any REIT, the company's goal is to acquire assets and lease them out for long periods of time. The only difference is IIP's specific focus on buying marijuana cultivation and processing sites and leasing them out for periods ranging from 10 to 20 years.

Marijuana remains a federally illicit substance, but this hasn't constrained demand for legal cannabis products in the United States. Since 1996, which is when California became the first state to legalize medical marijuana, 33 states have waved the green flag on medical pot. Of these 33 states, 11 have also OK'd adult-use consumption.

In other words, the U.S. has a burgeoning cannabis industry that could triple in size to as much as $37 billion in annual sales between 2019 and 2024, according to a recently released report from Marijuana Business Daily. The demand for cultivation and processing sites in the U.S. is very strong. 

What isn't as certain is access to traditional forms of financing, and that's where IIP comes into play.

Because cannabis is illegal at the federal level, most financial institutions are unwilling to offer basic banking services to pot companies. This includes everything from loans and lines of credit to something as simple as a checking or savings account. As a result, pot stocks often have few avenues with which to raise cash, other than diluting existing shareholders with stock offerings.

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Innovative Industrial Properties offers a solution known as sale-leaseback agreements, in which a multistate operator or single-state licensed producer will sell an asset to IIP in exchange for cash. In return, IIP will lease the asset right back to the seller for a long period of time. The licensed producer now has more financial flexibility, and IIP picks up a predicable revenue stream for at least a decade, if not longer. It's a win-win for both parties.

Furthermore, Innovative Industrial Properties has a modest built-in organic growth component. While there's little question that acquiring new properties is what has primarily fueled its early-stage growth, the company passes along a more than 3% rental increase to its tenants each year. It also collects a 1.5% property management fee that's based on the current rental rate, which rises each year. Together, this organic growth can lift operating results between 3% and 4% a year.

But as noted, acquisitions are what drive growth. Since the beginning of 2019, IIP's portfolio has grown from a mere 11 properties to 61 properties in 16 states, as of early August 2020. The company's weighted-average lease length on these properties is 16.1 years, with its last reported average return on invested assets of 13%. Though IIP hasn't mentioned its average return on invested capital since the first quarter of this year, it would imply a complete payback on the money it's put to work in roughly six years.

Putting the puzzle pieces together -- acquisitions, organic growth, sale-leaseback agreements, and strong domestic demand for cannabis products -- creates a company that reported 183% revenue growth and a 263% increase in adjusted funds from operations in the second quarter (ended June 30) from the prior-year period. For added context, full-year sales totaled $6 million in 2017 and are forecast by Wall Street to grow from an estimated $113 million in 2020 to $288 million by 2023. 

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That's what I call dividend growth!

Now for the best part. Because IIP is a REIT, the company is required to pay out a majority of its earnings as a dividend to shareholders in order to avoid paying normal corporate income tax rates. This has led to a 607% increase in the company's quarterly payout ($0.15 to $1.06) over just the past three years. 

At IIP's current yield of 3.6%, I'm fudging the definition of "high yield" ever so slightly, which unofficially cuts off at 4%. But keep in mind that, until three weeks ago, IIP had consistently been offering a 4% or greater yield to its shareholders over the past year. The only reason its yield has come down is because the company's share price is up 58% in 2020 and 244% over the trailing two-year period.

Income seekers looking to walk the fine line between high growth and high yield would be wise to consider investing in Innovative Industrial Properties.

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.