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Forget Dividend Kings: This Is the Best Income Stock for Your Portfolio

By David Jagielski - Mar 10, 2021 at 6:12AM

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Both its dividend payments and its profits have been growing at incredible rates.

Dividend Kings in general are great income investments. These companies have proven track records, having raised their dividend payments for at least 50 years in a row. That said, technically, all a company would need to do to keep such a streak growing would be to increase the dividend by a minimal amount -- say 0.1%. Anything that increased the yield at all from year to year would count.

So, while these types of investments may offer stability, they may not be the best options if you want to maximize your dividend income (and total gains) over the years. High-growth stock Innovative Industrial Properties (IIPR 2.58%) can be a much better option for investors, as not only are its payouts rising at impressive rates, but so are its profits. 

Hundred dollar bills

Image source: Getty Images.

Innovative Industrial nearly doubled its payouts in 2020

Today, Innovative Industrial pays a quarterly dividend of $1.24 -- more than three times the $0.35 it was distributing just two years ago. In 2020, it paid out $4.23 per share in dividends. That is 94% higher than the $2.18 it paid out in 2019. For many dividend stocks, it will take several years (in some cases, decades) for their payouts to double in value. Here's a quick look at how companies with much longer streaks have raised their payouts, including Coca-Cola3M, and Lowe's:

Company Current Yield

Quarterly Dividend (Current)

Quarterly Dividend (5 Years Ago)

Compounded Annual Growth Rate Years to Double
Coca-Cola 3.3% $0.42 $0.35 3.71% 19
3M 3.3% $1.48 $1.11 5.92% 12
Lowe's 1.5% $0.60 $0.28 16.47% 5

Data source: Company filings.

Innovative Industrial isn't on this list, as it hasn't been paying dividends for five years. But since its IPO in December 2016, it has already hiked its payouts nine times. Its dividend yield of 2.9% is not far below Coca-Cola and 3M's payouts and is still well above the S&P 500 average of around 1.6%.

As you can see, even a fast-growing dividend like the one from Lowe's will take roughly five years to double, assuming it were to keep going at its current rate. But for Coca-Cola, you will likely be waiting a couple of decades for your recurring income to double.

Growth at slow, modest rates is obviously more sustainable than sharply increasing payouts every year. But one of the reasons to remain optimistic about Innovative Industrial's dividend is that the company is in an incredibly high-growth industry.

There is plenty of growth still ahead for Innovative Industrial

Amid the pandemic, global cannabis sales were more than $21 billion in 2020, growing at a rate of 48% from the previous year. And analysts at cannabis research company BDSA project that those numbers will still nearly triple by 2026, reaching $55.9 billion. Innovative Industrial benefits from that growth because as more companies look to sell cannabis, there will be a greater demand for growing spaces, which this company offers through sale-leaseback agreements.

On Feb. 24, Innovative Industrial released its results for 2020, and revenue of $116.9 million for the full year was up 162% from 2019. Profits totaling $64.4 million grew at an even higher rate of 191%. With strong, fast-growing profits, Innovative Industrial will have more room to keep on increasing its dividend payments. And the opportunities are only going to keep popping up as the cannabis industry gets bigger.

Acquiring more locations is a key part of the company's growth, and as of Dec. 31, Innovative Industrial had 66 properties in its portfolio across 17 states. That's up from a year ago, when it had 46 properties in 14 states. With more states eyeing cannabis reform, including New York and New Mexico, there are plenty of opportunities for more growth for the company in the near future.

In November, voters in four states chose to legalize marijuana for recreational use. Today, 36 states permit marijuana for medical use, and there could be 16 that allow recreational use, as Virginia is in the process of legalization. (However, the number may fall back down to 15, as a judge in South Dakota has recently challenged that state's ballot results.)

Innovative Industrial is a great long-term buy

As a real estate investment trust, Innovative Industrial needs to pay at least 90% of its earnings back out to investors. And given that its profits are only getting bigger and there is a ton more growth on the way, there is little reason to doubt that the company will continue making significant increases to its dividend in the future. Now, I wouldn't expect to see those payouts double every year, but it is certainly in an excellent position to remain among the better dividend growth stocks out there today.

And not only does its dividend offer incredible potential, but its gains over the past year have also eclipsed all of the other stocks mentioned above:

IIPR Chart

IIPR data by YCharts

Don't let the cannabis industry (which can sometimes look risky) or Innovative Industrial's relatively short period of dividend payments scare you off, as this is a terrific investment and one of the safer pot stocks you can buy. 

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Stocks Mentioned

Innovative Industrial Properties Stock Quote
Innovative Industrial Properties
$130.21 (2.58%) $3.28
The Coca-Cola Company Stock Quote
The Coca-Cola Company
$64.81 (1.15%) $0.73
3M Company Stock Quote
3M Company
$148.31 (1.73%) $2.52
Lowe's Companies, Inc. Stock Quote
Lowe's Companies, Inc.
$195.21 (3.53%) $6.66

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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