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Is Innovative Industrial's (IIPR) Dividend Hike Sustainable?

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Innovative Industrial Properties, Inc. (IIPR - Free Report) recently announced a 10.4% sequential hike in the quarterly cash dividend, bringing in good news for investors. The REIT, which is focused on cannabis-centered real estate portfolio, will now pay the revised dividend of $1.17 per share for the third quarter, up from the $1.06 paid out in the prior quarter. It also indicates a 50% jump year on year.

The increased dividend will be paid out on Oct 15 to shareholders of record as of Sep 30, 2020. Based on the increased rate, the annual dividend comes in at $4.68 a share, resulting in an annualized yield of 3.7%, considering the company’s closing price of $125.85 on Sep 15.

Is the Dividend Hike Sustainable?

Innovative Industrial Properties has a robust operating platform and ample liquidity to support the dividend payment.

According to Arcview Market Research and BDS Analytics, in 2019, U.S-regulated cannabis sales increased to an estimated $12.4 billion, reflecting a surge of 37% over 2018’s aggregate of $9.1 billion and are expected to approach $34 billion by 2025.

The legalization of marijuana’s medical use across several states as well as the permission for recreational consumption in some has opened up opportunities for the cannabis industry. Therefore, with more states in the United States giving cannabis the green light, Innovative Industrial Properties is partnering with the experienced medical-use cannabis operators and serving as a vital source of capital by acquiring and leasing back their real-estate assets. Its plan is to acquire the existing, redeveloped and under-development industrial buildings, including attached and enclosed greenhouse facilities.

The company generated total revenues of $24.3 million in the second quarter, marking a whopping 183% increase year on year. The REIT’s adjusted funds from operations (FFO) for the June-end quarter soared 263% year over year on solid top-line growth.

Additionally, its performance paints an impressive FFO picture. The company’s current-year FFO per share is projected to grow at a rate of 42.2%.

Moreover, the company exited second-quarter 2020 with $50.2 million in cash and cash equivalents, and $323.3 million in short-term investments, aggregating $373.5 million. The company remains conservatively leveraged with no secured debt and approximately 12% debt to total gross assets consisting of its exchangeable senior notes at the end of the second quarter.

Bottom Line

Solid dividend payouts remain the biggest enticement for REIT investors and Innovative Industrial Properties remains committed toward boosting shareholder wealth through these dividend hikes. The latest hike marks the company’s eighth increase since it completed its initial public offering in December 2016. The company continues to target a dividend payout ratio of 75-85% of adjusted FFO on a stabilized portfolio basis.

We believe such disbursements highlight the company’s operational strength and commitment toward rewarding shareholders handsomely. The recent hike reflects the company’s ability to generate solid cash flow growth through its operating platform and high-quality portfolio.

Shares of this Zacks Rank #4 (Sell) company have gained 32.6% as against its industry’s decline of 7.7% over the past year.



You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Alpine Income Property Trust, Inc.’s (PINE - Free Report) FFO per share estimate for 2020 has been revised 2.6% upward to $1.18 over the past month. It currently carries a Zacks Rank of 2 (Buy).

Duke Realty Corporation’s (DRE - Free Report) Zacks Consensus Estimate for 2020 FFO per share moved up 3.5% to $1.49 over the past two months. The company currently carries a Zacks Rank of 2.

Sabra Healthcare REIT, Inc.’s (SBRA - Free Report) FFO per share estimate for the ongoing year has moved 3.6% north to $1.74 over the past month. The company currently holds a Zacks Rank of 2.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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