Are you looking for a great dividend stock? They're often hard to find, and that's because it takes a lot to be one. The company needs to pay investors an above-average yield, it should increase its payouts regularly, and the dividend payments should also be safe. You want to be able to just buy the stock and not worry about it.

Today, I'll look at whether cannabis-focused Innovative Industrial Properties (IIPR -1.07%) hits all the checkmarks to be considered a great dividend stock. Let's take a close look at not just the company's dividend, but the strength of Innovative's overall operations, to assess whether you should invest in the company today.

Innovative's dividend yield of 3.5% is well above average

Currently, Innovative pays its shareholders a quarterly dividend of $1.06. At a price of about $120 per share, the stock's yielding a little over 3.5% today. If you were to invest in an average stock on the S&P 500, your yield would be closer to 2%. That's a big difference, and it's easier to see when you put it into dollars. A $25,000 investment at a 2% yield would earn you $500 each year. But at a rate of 3.5%, you'd be earning $875, or an extra $275 annually. Imagine you hold the dividend stock for 10 years, and you're now looking at a difference of $2,750. And that's without factoring in any dividend growth along the way.

Cannabis greenhouse.

Image source: Getty Images.

Innovative has increased its dividend payments by more than 300% in just two years

Even if a dividend stock pays a decent yield today, you also want to consider its growth. If the dividend isn't increasing over the years, that means inflation will erode your payouts over time. Innovative is a real estate investment trust (REIT), meaning it has to pay 90% of its earnings back out to its shareholders. As long as profits continue to rise, so too will the company's dividend payments. 

Innovative has been growing its dividend rapidly in recent years. Just two years ago, the San Diego-based company was paying its shareholders a quarterly dividend of $0.25. Payouts have more than quadrupled in value since then, rising 324%. The company's most recent rate hike, from $1.00 to $1.06, is a modest 6% increase and likely much more sustainable over the long term, if investors are wondering what type of increase might be more typical in the future.

However, there are never any guarantees when it comes to dividends. Investors always need to be prepared in the event that a rate hike doesn't happen, or is not as high as they had hoped. For now, at least, Innovative looks like a solid dividend growth stock.

Is Innovative's dividend safe?

On Aug. 5, Innovative released its second-quarter results for fiscal 2020, recording sales of $24.3 million. That's a year-over-year increase of 183% from the prior-year period, when its sales were $8.6 million. The big jump comes primarily as a result of Innovative acquiring and leasing out more properties than it had a year ago.

Since April, Innovative acquired a total of eight properties with rentable square footage totaling 775,000. At the end of June, Innovative owned 58 properties with a total of 4.4 million rentable square feet. A year ago, the company owned just 22 properties, and its rentable square footage then was 1.7 million.

Innovative's strategy involves acquiring distressed assets in the cannabis industry and then leasing them back to marijuana companies. It's been working well for the business and has helped generate strong streams of income. In Q2, Innovative recorded funds from operations (FFO) of $19.7 million -- up 321% from a year ago. FFO is a common substitute for net income when evaluating REITs, as it can give a better picture of the company's overall performance when factoring out depreciation and other adjustments.

FFO per share was $1.12 in Q2, and that suggests that Innovative's quarterly dividend of $1.06 is well supported by the company's current operations.

The dividend is great

With above-average payouts that have increased rapidly in recent years and some impressive sales and profit growth, Innovative checks off all the boxes of a great dividend stock and then some. And with more states potentially legalizing cannabis this year, there may be many more growth opportunities for Innovative to continue adding properties to its portfolio in the near future. 

Year to date, the stock's been soaring above not just the Horizons Marijuana Life Sciences ETF (HMLSF -6.13%) but also the S&P 500:

IIPR Chart

IIPR data by YCharts

Its incredible growth, along with a top dividend, makes Innovative an appealing investment to add to your portfolio today and hang on to for many years as the cannabis industry continues to expand.