3 Supercharged Dividend Stocks to Buy If There's a Stock Market Sell-Off

High-dividend stocks can be nice hedges against a stock market downturn. Companies that can deliver supercharged dividends are generally healthy and have strong cash flows. And those regular payouts also make it easier for investors to keep a company's shares in their portfolios even when their prices go through a downturn. 

To find supercharged dividend stocks worth buying in a market downturn, I looked for those that met the following criteria: companies that grew their revenue and funds from operations (FFO) in the last quarter and that sport yields at least twice the S&P 500's 1.6% payout. My reason for these two criteria is to identify above-average payouts that, thanks to company growth, look safe and could even grow.

Two stocks meeting those criteria are cannabis-oriented real estate investment trusts (REITs) Innovative Industrial Properties (IIPR -0.17%) and NewLake Capital Partners (NLCP -0.27%), while a third is senior housing REIT National Health Investors (NHI 0.45%). None of these stocks has performed particularly well this year. National Health Investors' shares are up by a little more than 1% and Innovative and NewLake are down by more than 28% and 21%, respectively.

However, their  financial health and dividends make them solid long-term choices, especially if we hit another bear market. Marijuana sales will continue to grow as more states legalize its sale and use, and the ongoing increase in the country's elderly population will drive demand for senior housing.

The case for Innovative Industrial Partners

Innovative Industrial Partners has a relatively simple business plan. As more states open to medical marijuana sales or recreational-use sales, or both, there's a growing need for cannabis retail buildings and enclosed cannabis cultivation facilities. Innovative provides capital to cannabis companies by buying their properties and then leasing them back to the sellers under triple-net leases that put most of the costs on the tenants.

The REIT owns 108 properties across 19 states, with approximately 8.9 million rentable square feet. Of those properties, five are under development. Innovative focuses on larger cannabis companies, and 89% of its tenants are multi-state operators. In the first quarter, it collected 98% of the rents it was owed.

Innovative has raised its quarterly dividend by 1,100% since it went public in 2016, and raised its payouts every year since then. In 2022, it increased the dividend by 2.9% to $1.80 per share; at its current share price, its yield is around 9.8%. Its adjusted funds from operations (AFFO) payout ratio of 80% means the dividend is well within the safety guidelines for a REIT.

That dividend is buoyed by the company's growth. In the first quarter, Innovative reported revenue of $76.1 million, up 18% year over year. Funds from operations (FFO) is a better metric for determining profitability for a REIT than net income, and Innovative's FFO was up 17.6% year over year to $57.5.million. Since 2016, its annual AFFO has grown at a compound annual rate of 151%.

The case for NewLake Capital Partners

NewLake is younger and smaller than Innovative Industrial Properties. Founded in 2019, it had its IPO in 2021 and owns 32 properties across 12 states, comprising 1.7 million square feet. Like Innovative, its triple-net leases are long term, with an average remaining lease term of 14.6 years.

NewLake made news recently because it didn't increase its dividend, keeping it at $0.39 after boosting it for seven consecutive quarters. Even without an increase, its yield is around 12.4%. Its AFFO payout ratio of 86% is higher than Innovative's, but still conservative, leaving room for more increases.

The company has grown its annual AFFO by 344% since 2021. In the first quarter, it reported revenue of $11.4 million, up 12.3%, year over year, and FFO of $9.5 million, up 21.1%.

The case for National Health Investors 

National Health Investors specializes in independent-living, assisted-living and memory-care communities, retirement communities, skilled nursing facilities, and specialty hospitals. It owns 193 properties across 33 states, which it leases to 29 tenants.

Both NHI and its tenants struggled during the height of the COVID-19 pandemic because of increased costs and because  many seniors chose to avoid assisted-living facilities. On top of that, labor shortages made it difficult for many facilities to operate at full capacity. Now that both concerns are ebbing, senior living facilities are bouncing back, and so is National Health Investors.

At the current stock price, its quarterly dividend of $0.90 per share delivers a yield of around 6.8% with a normalized FFO payout ratio of 81.8% -- again, well within the safety guidelines for a REIT.

In the first quarter, the company reported revenue of $82.4 million, up 15.5% year over year, and FFO of $50.6 million, up 5.1%. 

Management also updated guidance to say it expects full-year FFO of between $192.3 million and $194.8 million, compared to 2022's FFO of $158.9 million.