Real estate investment trusts (REITs) usually cater to slow and steady income investors, but not Innovative Industrial Properties (IIPR 2.41%). This unique REIT is growing so fast it's almost shocking. Here's why that's the case, and why dividend growth investors will want to own the stock, even though it trades at a premium price.

1. Marijuana 

The big-picture story at Innovative Industrial Properties is that it owns the facilities in which marijuana is grown, processed, and sold. It is a relatively new industry, and one that is growing very quickly. Regulated marijuana sales increased by more than 50% in 2020, and the company expects sales to more than double by 2025. That's a really great backdrop for this REIT to keep expanding its portfolio.

A marijuana leaf with a rising line superimposed over it.

Image source: Getty Images.

This all ties back to the slow-moving legalization of the drug. As more and more states, and perhaps eventually the federal government, give pot the green light, the opportunities for Innovative Industrial will keep expanding.

But you need to look beneath this top-level view to really understand why this REIT is so interesting.

2. First-mover's advantage

As one of the first of the still relatively few REITs serving this space, Innovative Industrial has been able to build a fairly sizable portfolio of 73 properties. And those properties are scattered across some of the best state markets for the drug -- 18 states in total, with no single market making up more than 18% of rents.

That's good -- but even better is that the company has forged relationships with some of the biggest and best names in the industry. It is a trusted partner that will likely be given the opportunity to grow along with its lessees as the marijuana legalization process continues to spread. So there's no particular reason to doubt that the REIT can't continue to get its fair share of opportunities between now and 2025 as the industry doubles in size.

3. The net-lease thing

One of the most important aspects of Innovative Industrial Properties' business model is that it is a net-lease REIT. Basically, that means it owns single-tenant properties where the tenants are responsible for most of the operating costs of the properties they occupy. It's a fairly low-risk approach to owning real estate, in which the landlord just sits back and collects the rent. 

The key to Innovative Industrial's success is that net-lease deals are usually a way for companies to raise cash without the need to tap capital markets or go to a bank. Essentially, companies sell vital assets they own, and then lease them back under long-term contracts (generally with regular rent hikes built in). This is a good way for companies to access growth capital in normal situations -- but in the pot space there's another benefit. Until marijuana is legal at the federal level, banks are going to be reluctant to deal with growers, so those companies have limited financing options. Thus, Innovative Industrial is a key financing opportunity for them.

IIPR Chart

IIPR data by YCharts

4. Expensive, but growing fast

To be honest, Wall Street is aware of these positives, so value-conscious investors probably won't be too excited by the stock. Neither will investors in search of a high yield, given that its current dividend yield is a miserly 2.6% at recent prices. However, those looking for a mix of business growth and dividend growth will likely find Innovative Industrial Properties very appealing. The growth story has already been laid out above, but the dividend growth here is probably even more exciting. Although slated down at number four on this list, it's really the single smartest reason to buy Innovative Industrial Properties.

Innovative Industrial started paying a dividend in 2017 at $0.15 per share per quarter. By the end of the third quarter of 2021 the quarterly dividend was up to $1.50 per share. That's just four years. And while the growth rate has begun to slow down some, the last hike was 7%, which is pretty good for a REIT. But that was over the second quarter's dividend payment -- if you look to the year-over-year period, the hike was a huge 28%. It's probably not realistic to expect that kind of growth for too much longer, but if the REIT can achieve 10% growth, which doesn't seem outlandish at all, it would still be a great dividend growth stock.

Perfect for the right investor

Innovative Industrial Properties isn't a great fit for all investors, with value and income investors likely to take a hard pass here. But if you are looking for a solid dividend growth stock, it would be hard to ignore this REIT. It offers a unique service to a growing industry, and has built up a very impressive roster of customers that should afford it growth opportunities for years to come. And investors will likely be rewarded with impressive dividend growth as this unfolds. It's probably worth paying full price for that ticket.