Over the past decade, the rise of the cannabis industry has created a lot of wealth for investors. Those who invested early likely saw their investments double or triple in just a few short years. For example, my investment in Innovative Industrial Properties (IIPR 4.98%) -- a real estate investment trust (REIT) specializing in leasing industrial space to medical marijuana operators -- grew over six times in just five years.
Growth at this scale is impressive by any measure, but when coupled with the company's high-paying dividends and opportunity for future growth, it's understandable to see why Innovative Industrial Properties is the gift that keeps on giving.
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Double-digit growth with a bow on top
Innovative Industrial Properties is one of the unique REITs in the market today, being the first and only REIT in the medical marijuana field. The company, which has now amassed a portfolio of over 103 Properties totaling 7.7 million rentable square feet across 19 States, uses a sale-leaseback structure to lease industrial space to existing medical marijuana operators. In the fourth quarter of 2021, IIPR added 27 fully leased properties to its portfolio in Colorado, Pennsylvania, and North Dakota.
The company is rather young, first going public in 2017, but since its IPO, share prices have grown 66%, and investors have earned an over 71% return on an annualized basis. Moreover, in the nine months ended 2021, revenues jumped 82%, and diluted net income per share is up 46%, while adjusted funds from (AFFO) operations, a metric similar to earnings per share, is up 32.8%. But 2021 wasn't just an extraordinary year. Quarter over quarter, the company consistently outperforms expectations -- and there's still room to grow.
The gift of dividends
Because REITs benefit from a tax-advantaged structure, they are required to pay at least 90% of earnings to shareholders, meaning they can be a great source for reliable dividend income. Innovative Industrial Properties has increased dividends 15 times since its IPO, with its most recent increase in Q3 2021. Investors today can receive a 2.3% dividend return, which isn't stellar. But considering its payout ratio is only 87%, and it's incredibly well-positioned in terms of cash and debt, its dividend is both reliable and safe.
It's very likely dividend payouts will continue to climb as the company achieves further growth. And considering 14 states have yet to legalize marijuana for medical use, there's a lot of room to expand in the future.
