If you're looking for safe dividend stocks to buy and hold, you might be tempted to load up on big names like McDonald's or Coca-Cola. While they have great track records, the former has increased its dividend by just 19% in three years, and the latter has grown its payouts by 10% during that period.
By comparison, one stock that has been far more aggressive in its payout hikes is Innovative Industrial Properties (IIPR 0.28%). In just three years, it has more than doubled its dividend payments. Could this be an underrated dividend stock, or is it growing too fast for its own good?
Innovative Industrial Properties' growth has been incredible
Innovative Industrial Properties (IIP) is a real estate investment trust (REIT) that helps provide funding for cannabis producers, which otherwise might have trouble raising money due to the federal ban on marijuana in the U.S. Through sale-and-leaseback agreements, the REIT gets a potential long-term tenant, while the producer gets an influx of cash to help grow its operations.
Over the years, the REIT has been amassing properties and growing its tenant base. At the end of 2021, it had 103 properties spanning multiple states, including top cannabis markets such as California, Florida, Illinois, Massachusetts, Michigan, and Pennsylvania. Just four years earlier, at the end of 2017, it only had five properties.
IIP's explosive growth has led to significant profits along the way; net income of $114 million in 2021 grew 73% year over year, and by 386% over a two-year period.
The dividend has grown more than 1,000% since 2017
IIP has also been increasing its dividend payments at an equally incredible rate. Today its quarterly dividend is $1.75 per share. That yields 6.5% annually and is well above the S&P 500 average of just 1.4%. When the REIT first began making dividend payments in 2017, its first two payments were just $0.15 per share. Since then, the company has increased its payout by a whopping 1,067%.
Even over just a three-year stretch, the payout has grown by 192%, nearly tripling during that time. IIP has increased its payments multiple times each year as it has been aggressive in returning profits to shareholders.
Can the company sustain the dividend?
A key metric for REITs when assessing their dividend payments is funds from operations (FFO). It's a more reliable metric than just income as it excludes one-time cash items. Through the first three months of 2022, IIP reported FFO per share of $1.86, which comes in slightly above the $1.75 it pays out in dividends. And over the years, the REIT's dividend increases have not outpaced its growth in FFO per share:
IIPR FFO per share (quarterly). Data by YCharts.
Another way to look at the safety of the dividend is by comparing free cash flow against total dividends paid. And IIP has had sufficient free cash to support its payouts over the years:
Fundamental chart. Data by YCharts.
IIP could be a gem for dividend investors
IIP has been increasing its payouts aggressively, and there's still more room for it to grow as the cannabis industry expands and more states legalize it. The sector hasn't generated much excitement of late, and the stock is down 41% over the past year. But that's still nowhere near the 65% decline the Horizons Marijuana Life Sciences ETF has had during that time, and the company's fundamentals are still incredibly strong.
If you're looking for a fast-growing dividend that pays you better than McDonald's, Coca-Cola, or other ultra-safe income stocks, IIP could be an excellent option.
