Dividend stocks are boring. That's what many investors think. But while some dividend stocks are indeed boring, not all of them are.
Innovative Industrial Properties (IIPR +5.21%) stands out as a great example. This ultra-high-yield dividend stock could skyrocket 76% over the next 12 months, according to Wall Street.
NYSE: IIPR
Key Data Points
Why Wall Street likes the stock
Innovative Industrial Properties (IIP) is the only real estate investment trust (REIT) focused on the U.S. cannabis industry that trades on the New York Stock Exchange. And it's by far the biggest cannabis-focused REIT based on market cap. As of Dec. 31, 2022, the company owned 110 properties in 19 states.
The consensus Wall Street 12-month price target for IIP is $150.80. That's roughly 76% higher than the current share price. Both of the analysts who cover the stock and were surveyed by Refinitiv in January recommend IIP as a strong buy. Why does Wall Street like this stock so much?
One reason is that IIP's shares are more than 70% below their previous high. Analysts seem to think the sell-off was overdone. That view seems warranted based on IIP's business performance. In the third quarter of 2022, IIP's total revenue jumped 32% year over year to $70.9 million. Its earnings rose 25% to $37.3 million.
Analysts also expect the demand for cannabis in the U.S. to increase. This should bode well for IIP's prospects as cannabis operators turn to it for the capital needed to meet the rising demand.
Of course, Wall Street no doubt likes IIP's dividend. The company's dividend yield currently stands at nearly 8.4%. IIP has increased its dividend payout by 12 times over the last six years.
What about the risks?
But what about the risks that IIP faces? To be sure, there are potential problems that could derail the comeback analysts expect.
IIP announced last year that two of its major tenants, Kings Garden and Vertical, failed to pay rent for some properties. Last week, the REIT revealed additional tenant defaults. SH Parent (Parallel) and Green Peak Industries (Skymint) didn't pay rent in January for one property each. IIP also executed lease amendments with Holistic to defer rent for three properties and with Calyx Peak for one property.
The reality is that some of IIP's revenue is at risk. The company collected 94% of total payments owed in the fourth quarter. At this point, though, the damage has been relatively limited. Even the tenants that are in default for some properties are paying full rent for all of their other properties leased from IIP.
The good news is that none of IIP's tenants represent more than 14% of the company's total portfolio. No state makes up more than 16% of its portfolio. Around 55% of IIP's properties are leased to publicly traded cannabis operators, which have greater flexibility in raising cash to fund operations than private companies do.
Also, another risk for IIP doesn't seem to be a major concern right now. An effort by some members of the U.S. Congress to reform banking regulations never came up for a vote in the Senate. This legislation would have paved the way for increased competition for IIP in providing capital to cannabis operators.
Will IIP really skyrocket 76% higher?
It's quite possible that Wall Street's bullishness about IIP could be justified. If the financial outlook for U.S. cannabis operators improves significantly this year, investors could again flock to the REIT stock.
However, there's also a real chance that IIP won't deliver such a tremendous return. It could take a while for the supply-demand imbalance that's hurt the cannabis industry to be resolved. IIP just might have more tenants in a position where they can't pay their rents.
Over the long term, IIP's prospects should be pretty good as the U.S. cannabis market expands. The short-term picture for the company, though, is somewhat murky.
