This Pot Stock Just Gave Investors a Big “Pay Raise”

Getting Paid Directly from a Pot Stock?

For the most part, if you want to make a cash profit by owning pot stocks in today’s market, you’d have to wait for their prices to go up, sell some shares, and pocket the different between the selling price and what you paid for. Simply put, you’d need their stock prices to go up to make money.

But as we’ve seen plenty of times, stock prices don’t always go up, even for the companies in the exciting cannabis industry. To give you an idea, the North American Marijuana Index actually declined four percent in the month of June—a period where the S&P 500 Index climbed to a new all-time high. (Source: “North American Marijuana Index,” MarijuanaIndex.com, last accessed July 18, 2019.)

In other words, depending on when you buy and sell shares, pot stock investing isn’t always profitable.

The neat thing is, during the same month, investors of a particular pot stock actually got rewarded with a massive “pay raise.”

That’s right: there was no buying or selling decision involved. If you owned shares of this pot stock, you would have received a bigger check in June 2019 than you did before.

But wait a second, does that mean this pot stock was mailing out checks to investors on a regular basis?

Exactly, as a matter of fact, the company has been doing that for over two years.

I’m talking about Innovative Industrial Properties Inc (NYSE:IIPR), a company that owns, manages, and acquires specialized industrial properties leased to cannabis producers.

In this day and age, most cannabis companies are trying hard to expand their business. As a result, they tend to reinvest their profits (if they have any) to ramp up production instead of returning cash to shareholders.

But Innovative Industrial Properties Inc is not the average pot company. Because the company focuses on the real estate side of the business, it can actually generate a predictable stream of cash flow. Since its inception in 2016, the company has been returning cash to investors through regular dividend payments.

And of course, the “pay raise” I was referring to earlier on came in the form of a dividend hike.

Innovative Industrial Properties Inc Returning Cash to Investors

On June 14, Innovative Industrial Properties Inc declared a quarterly cash dividend of $0.60 per share. The amount represented a 33% increase from the company’s prior quarterly payment of $0.45 per share and a whopping 140% increase over its year-ago quarterly dividend of $0.25 per share. The increased dividend was paid on July 15 to shareholders of record as of June 28. (Source: “Innovative Industrial Properties Declares Second Quarter 2019 Dividends,” Innovative Industrial Properties Inc, June 14, 2019.)

Based on where IIPR stock is trading at right now, the new quarterly dividend rate translates to an annual yield of 1.9%.

I should point out that this is a cash return that investors get no matter what the stock price is doing. That means that even if the U.S. stock market suddenly enters a downturn and IIPR stock takes a tumble, shareholders of this company can still count on those quarterly cash dividends.

How would that be possible?

Well, it all goes back to the nature of IIPR’s business. Like I said, this is a company focusing on the real estate side of the cannabis industry. As of June 24, 2019, Innovative Industrial Properties Inc’s portfolio consisted of 22 properties totaling 1.65 million square feet. These properties are located in Arizona, California, Colorado, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Ohio, and Pennsylvania. (Source: “Leading Provider of Real Estate Capital for the Medical-Use Cannabis Industry,” Innovative Industrial Properties Inc, last accessed July 18, 2019.)

What is so special about those states? Well, every single one of those states has legalized medical marijuana. And that’s how Innovative Industrial Properties Inc is climbing onboard the marijuana profit train: All of the company’s 22 properties are leased to state-licensed medical-use cannabis operators.

Other than boasting 100% occupancy, IIPR’s business also stands out due to the length of its lease agreements. If you’ve been a residential landlord before, you’d know that you should consider yourself lucky if you find a tenant who’s willing to sign a one-year lease. In marijuana real estate, on the other hand, things can be much more long-term oriented. The weighted average lease length on IIPR’s properties stands at 15.3 years. (Source: Ibid.)

When it comes to the cash flow visibility in the real estate business, few things are better than a perfect occupancy rate paired with an average lease term of over a decade.

A Growing Business

Now, being a landlord is probably not as exciting as growing pot. But here’s the thing: while Innovative Industrial Properties Inc operates on the real estate side of the cannabis business, it still manages to deliver growth rates that would make a marijuana producer feel jealous.

In the first quarter of 2019, Innovative Industrial Properties Inc generated $6.6 million in rental revenue, representing a 146% increase year-over-year. Adjusted funds from operations, a critical measure of a real estate company’s performance, came in at $5.3 million, marking a staggering 275% increase from the $1.4 million earned in the year-ago period. (Source: “Innovative Industrial Properties Reports First Quarter 2019 Results,” Innovative Industrial Properties Inc, May 8, 2019.)

Innovative Industrial Properties Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

If you need any further convincing that Innovative Industrial Properties Inc is a true marijuana stock, just take a look at the above stock chart. Year-to-date, IIPR stock has skyrocketed more than 170%.

And because the company is structured as a real estate investment trust, it is required by law to distribute at least 90% of its profits to shareholders in the form of dividends. That means that as Innovative Industrial Properties Inc further grows its business, more “pay raises” are likely on the way for IIPR stock investors.