Innovative Industrial Properties, Inc. (IIPR) is a REIT specializing in acquiring, possessing, and operating specialized industrial properties leased to state-licensed operators for their regulated medical-use cannabis facilities. The company was established in 2016 and is headquartered in San Diego, California.
IIPR earns money by leasing properties to customers and collecting rent. As a REIT, the corporation must pay out at least 90% of its taxable revenue in dividends to shareholders. Since it went public in 2016, IIPR has continuously paid dividends, and its dividend yield has risen over time.
IIPR’s stock is traded on the New York Stock Exchange (NYSE) and has performed admirably since its initial public offering, with share prices rising dramatically over time.
Dividend Analysis of Innovative Industrial Properties (IIPR)
Solid dividend payouts are the most appealing feature for REIT shareholders, and IIPR, centered on a cannabis-centered property portfolio, is no exception. As a result of this most recent increase, the company’s common stock dividends announced for the 12 months ending September 30, 2022, totaled $6.80 per share, representing a 25% increase over dividends paid for the 12 months ending September 30, 2021.
While the company’s 7.1% dividend yield may be appealing to income investors, the company also has preferred shares that are trading above par and yielding 8.6%, as well as an even more alluring bond that is trading at a yield to maturity of 9.7%.
The cash flows generated by IIPR are sufficient to pay dividends at its current cash payout ratio of 88.9%. IIPR can meet its payments at its current payout ratio of 86.5% with earnings.
IIPR’s dividend (7.1%) is in the top 25% of US market dividend payers (4.49%).
IIP has had a relatively easy ride up until lately because the firm has been expanding its list of assets as more states legalize marijuana. In the process, the company’s profits increased, and it increased dividend payments. The situation has been advantageous for both the business and its shareholders.
Innovative Industrial Properties has given dividends to its stockholders every three months since July 14, 2017.
Innovative Industrial Properties has a relative dividend yield of 7.1% as of January 1, 2023, compared to the REIT-commercial industrial average of 4.8%. The dividend yield for Innovative Industrial Properties was 2.1% in the previous year.
Innovative Industrial Properties has been paying quarterly dividends since July 14, 2017, ranging from $0.15 to $1.80 per share. The dividend yield for Innovative Industrial Properties has been 2.9% annually on average for the previous five years.
According to several analysts, the 7.1% yield is indeed a reward for investors seeking the highest income potential. Investors frequently choose between dividend growth and current income, but IIPR offers both in spades. Although the 7.1% yield would only last for a short time, investors would still buy if it did.
IIPR has historically been an attractive dividend stock due to the company’s proactive approach to increasing dividends. IIPR paid its stockholders $0.25 quarterly in July 2018, so the $1.80 it pays out now is approximately seven times that amount.
If the current rate of return stays the same, less than $14,000 would be enough to invest in the company and earn a $1,000 dividend yearly.
Furthermore, Innovative Industrial Properties has paid dividends for the past five years. This demonstrates the firm’s dedication to returning profits to shareholders. According to experts’ most recent consensus estimates, the company is anticipated to continue paying out 94% of its profits over the following three years.
The corporation has a strong business strategy to maintain long-term profitability and reward shareholders. In addition, the United States legalization of marijuana for medical and recreational purposes has created chances for the cannabis sector in general and IIPR in particular to thrive.
For IIPR investors, any news of a default regarding a REIT with one of its key tenants is a cause for concern. This is not unusual, especially given that IIPR is concentrated on the cannabis industry, where many companies struggle to turn a profit and frequently rely on share offerings to finance their expansion. The current yield’s sustainability is dependent on management’s actions going forward.
If the scenario does not improve, IIPR may be forced to halt its rapid rate hikes. At worst, it might reduce the dividend. The high rate it is currently at means investors could still get a large dividend even after a cut.
Even though IIPR’s dividend increase has been quick, it has been sustainable as the business has grown. A significant portion of the company’s funds from operations have been paid out as dividends per share (which is standard for REITs). That implies that, should IIPR struggle, there would be little breathing room. Of course, it might generate funds through offerings, but that isn’t a long-term strategy for paying the dividend.
With a three-year median payout ratio of 84%, Innovative Industrial Properties has a high payout ratio. This indicates that it only has 16% of its income to put back into its company. However, because of statutory requirements, it’s common to find a REIT with such a high payout ratio. Despite this, the business’s earnings have significantly increased.
Cash Flow Analysis of Innovative Industrial Properties (IIPR)
Innovative’s operating cash flow has grown by $38 million over the same nine-month period last year in terms of cash flow. The $45 million in cash left over after distributions is what has investors concerned about the common share dividend. Taking on further debt is enough to support the company’s physical assets.
Analysts do think that increased interest rates pose a threat to Innovative’s prospects for growth. Still, if they curtail their acquisition of assets, they should generate enough free cash flow to maintain their preferred dividend. Cash flows support IIPR’s dividend payments at its current cash payout ratio (88.9%).
During the five years of share price growth, Innovative Industrial Properties went from a loss to profitability. Sometimes the beginning of profitability marks a significant turning point that can indicate impending rapid earnings growth, which supports highly significant share price increases. It is essential to include the results from the previous three years as well, given that the company was unprofitable five years ago.
Debt Analysis for Innovative Industrial Properties (IIPR)
The debt structure of Innovative is quite manageable. The corporation holds most of the total debt ($239 million) in liquid assets. When the debt matures, if refinancing expenses are exceptionally high, Innovative may use some funds to scale back its refinancing.
Although IIPR has more short-term assets ($96.2 million) than short-term liabilities ($64.1 million), it does not have enough long-term assets ($399.7 million) to pay its long-term liabilities. It is deemed satisfactory that IIPR has a net debt-to-equity ratio of 11.4%.
The debt-to-equity ratio at IIPR climbed from 0% to 15.3% over the previous five years. Operating cash flow (75.2%) provides adequate coverage for IIPR’s debt. EBIT provides sufficient coverage for IIPR’s interest payments on its debt (8.9x coverage).
The company’s debt is trading 80 basis points above the typical B-rated corporate debt while not having a credit rating and offers a yield of 9.7%, which is greater than the common or preferential dividends. Investors in fixed-income investments should feel secure investing in Innovative Industrial Properties’ high-yield debt because the company is not close to default.
Should You Invest in Innovative Industrial Properties (IIPR) Considering Its Outstanding Dividend Payouts?
IIPR is a favorite REIT of investors and is quickly expanding into many investors’ more prominent positions. Investors are interested in how the shares perform over the coming years because multiple expansions will likely occur, along with substantial dividend increases and a 7.1% yield to boot. The business keeps adding assets to its real estate portfolio; therefore, the company will be absolutely fine even if the regulatory landscape changes.
IIPR is concentrating on purchasing existing, refurbished, and under-construction industrial buildings, particularly enclosed greenhouse facilities, to take advantage of expansion potential. IIPR helps medical cannabis companies get the money they need by buying their real estate assets and renting them back.
Overall, it appears that Innovative Industrial Properties firm does have certain advantages. Specifically, its rapid earnings growth. However, if the corporation had reinvested more significant amounts of its earnings and issued fewer dividends, the earnings growth figure might have been even higher.
Regulatory, Legalization & Financial Challenges of IIPR Concerning the Future
Cannabis REITs like IIPR may encounter several regulatory and legal difficulties. Despite being permitted for medical or recreational use in many states, cannabis remains illegal at the federal level in the United States, which presents a serious barrier. This presents a complex legal situation for cannabis REITs, who must manage disparate federal and state laws and regulations.
Another problem for cannabis REITs seems to be the lack of access to traditional funding methods, like bank loans and bonds, due to the federal cannabis prohibition. Because of this, it might be more challenging for cannabis REITs to raise money to fund their expansion and operations.
Cannabis REITs may also encounter regulatory difficulties concerning zoning and land use, as well as issues with insurance and taxation. Investors may experience uncertainty due to the cannabis industry’s quickly changing legal and regulatory environment, which may also affect cannabis REIT valuation.
Overall, cannabis REITs face regulatory, legal, and financial obstacles that can be costly and influence their capacity to grow and remain stable in the future.
Companies like IIPR may show outstanding growth and distribute good dividends. Still, the regulation and financial stability are always in jeopardy as the federal government keeps modifying rules and regulations. IIPR should concentrate on compliance apart from its financial records and dividend strength.