With a well-known brand and thousands of pharmacies under its banner, Walgreens Boots Alliance (WBA 3.69%) is an obvious candidate for dividend investors. Its business isn't going anywhere, and its years and years of revenue growth prove it. But your money could almost certainly make more money elsewhere.
Enter Innovative Industrial Properties, (IIPR 0.37%) a dividend stock that's a veritable money printer and a growth stock too. An investment in IIP is a better choice for cash flow than Walgreens. Here's why.
Walgreens simply can't keep up with IIP's growth rate
In case you aren't familiar, Innovative Industrial is a real estate investment trust (REIT) that rakes in the cash by gobbling up marijuana cultivation facilities and then renting floor space to the very cannabis companies it bought the property from. That's a dramatically different business model than that of Walgreens, which operates retail pharmacies around the globe. But fundamentally, both companies have a similar appeal to investors, namely their high-yield dividends.
At the moment, IIP's forward dividend yield is nearly 8%, whereas Walgreens' is about 5.8%. To afford its payout in the long term, Walgreens depends on consumers to keep needing (and paying for) their prescriptions and consumer health goods. Significant revenue growth isn't something that management expects anytime soon, though moderately paced earnings growth will continue.
For Innovative Industrial, the case is largely the opposite, and that's the core reason it's a better choice for investors seeking passive income. According to a recent report by New Frontier Data, by 2030, the U.S. market for legal cannabis will reach $58 billion, a huge increase from $27 billion in 2021. That means over the next seven years or so, there will be an enormous amount of demand for new places to cultivate cannabis, which will benefit IIP. As the company passes maintenance and other costs off to its tenants, it will likely remain strongly profitable as it expands to serve demand from the industry.
There's no similar catalyst for Walgreens; people aren't about to spend twice as much money on their prescriptions anytime soon. Plus, there's already evidence of Innovative Industrial expanding much faster. Over the past three years, its trailing-12-month (TTM) cash from operations (CFO) rose by 392.6%, whereas the pharmacy chain's actually shrank by about 37%. The cannabis market's trajectory is going to be a major tailwind.
IIP's dividend is just getting started
The benefit of a rapidly growing bottom line is already apparent, and it will make investors in IIP richer in the future. Right now, an investment of $1,000 in IIP will provide investors with $79.90 a year in passive income. The same investment in Walgreens would only generate $57.80 per year. And that's before even getting into the dramatically different pace of growth for each of the two companies' dividends.
Innovative Industrial's dividend rose by 80% in the past three years, whereas Walgreens only hiked its payout by about 4.9%. And while the pharmacy chain's payout ratio is a much more sustainable 38.2% compared to the marijuana landlord's 115.9%, it has no real way of escalating its dividend any faster, because (you guessed it) its market isn't growing anywhere near the pace of IIP's.
Of course, no investment is without risk, and the REIT's major risk is that its tenants fail to pay rent, which could eventually imperil its dividend. But, with one of its renters defaulting this summer and its top line continuing to grow robustly year over year regardless, it will take more than one unpleasant surprise to bring IIP down. And for investors who want to see their portfolio printing money over the next 10 years, IIP is undoubtedly a more lucrative choice than Walgreens.
