3 reasons why you can confidently add this stock to your portfolio


The ups and downs in the marijuana industry make investors skeptical about investing in cannabis stocks. This makes it easier for Innovative industrial properties (NYSE: IIPR) attract investors by allowing them unconventional access to the cannabis sector. It is a real estate investment trust that provides real estate solutions for medical cannabis companies.

As the marijuana industry continues to grow, so does Innovative. The company has experienced exceptional revenue and profit growth over the past few quarters. Its recent results for the second quarter ended June 30 were more than impressive. Let’s see why investors can confidently add this stock to their portfolio.

Image source: Getty Images

Indirect entry into the cannabis sector

The illegality of marijuana in the United States prevents some investors from investing in cannabis stocks, although their place in an emerging market may offer many opportunities for growth. Here, Innovative Industrial offers an unconventional way to invest without exposing itself to the classic risks of the sector.

Due to legal restrictions, cannabis companies may find it difficult to raise capital to set up large production facilities. Innovative buys these properties and re-leases them to cannabis companies in a leaseback system. Its only source of income is rental income, which is growing at an incredible rate, thanks to the expansion of the cannabis businesses. Its total second-quarter revenue jumped 101% year-over-year to $ 49 million, while profit doubled to $ 29 million from $ 13 million a year ago.

Exceptional growth opportunities

Innovative’s unique business model has allowed it to grow rapidly, especially when the cannabis industry is booming. Innovative now owns 75 properties in 19 states totaling 7.3 million square feet of space. Another good news is that 100% of its properties are leased by cannabis companies. Between July 1 and October 1, the company made four acquisitions (which include three new properties and the expansion of the land into one of its existing properties).

Its tenants include popular cannabis players Cresco Laboratories, Trulieve Cannabis, Curaleaf Holdings, and Green thumb industries. These companies are expanding to expand their footprint nationwide, and if they continue to rely on Innovative, the Real Estate Investment Trust (REIT) will have a bright future ahead of it. Innovative is also in a stable financial position for continued growth. It ended its second quarter with $ 806 million in cash, cash equivalents and short-term investments, and no debt.

A stock paying dividends

The icing on the cake of investing in Innovative is its ability to pay consistent dividends. As a REIT, Innovative is legally required to return 90% of its taxable income to shareholders. The company not only paid dividends regularly, but also increased them. On September 15, the company announced a 28% year-over-year increase in the quarterly dividend to $ 1.17 per share. This is the 12th dividend increase since its IPO in December 2016.

With the increase in its Adjusted Operating Funds (AFFO), which grew 105% year-over-year to $ 43 million in the second quarter, the company is able to increase its dividend . AFFOs are similar to the net profit of a non-REIT company, which determines how much of the profit can be paid out as dividends.

Innovative’s dividend yield of 2.3% is not exorbitant at the moment, but is better than that of S&P 500average yield of 1.3%. But the fact that the company’s earnings and AFFOs are growing gives me confidence that it will continue to grow and pay dividends – and that’s what investors should be looking for in a good dividend stock.

A certain risk remains, but always a safe bet

Not being an outright cannabis company protects Innovative from many of the typical risks associated with the industry. However, some investors are wondering if, after federal legalization (when this happens), jackpot companies will have easy access to capital from banks and financial institutions and may no longer need Innovative’s help.

This is undoubtedly still a potential problem, but Innovative could still continue to work with other cannabis companies that need more capital in a freer legal landscape. In addition, Innovative’s lease has a lifespan of several years (the weighted average lease term is 16.6 years), so it will continue to generate rental income for many years, regardless of the short-term changes to federal funding rules. As long as state legalization continues to intensify, expansion plans for cannabis companies will also intensify, allowing Innovative to grow significantly and make it a highly prized cannabis stock to include now. in your wallet.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

Leave A Reply

Your email address will not be published.