Had you invested during its 2016 IPO, you would have a good start on becoming a millionaire. Initially offered at $20 per share, the real estate investment trust (REIT) now trades for around…
$240 per share, a better-than-1,150% increase, or a compounded growth rate of almost 74% annually.
Don’t expect Innovative Industrial Properties (NYSE:IIPR) to continue growing at such meteoric rates — no business can maintain such a pace forever — but don’t expect it to collapse, either. In fact, there are several good reasons this REIT could be a millionaire-maker stock.
A mutually beneficial relationship
Innovative Industrial Properties specializes in the medical marijuana field, and is the first and leading REIT when it comes to owning, managing, and leasing cultivation and processing properties. It currently owns 73 properties across 18 states, equal to some 6.6 million square feet, all of which were leased to state-licensed marijuana growers for an average period of 16.7 years.
It’s also built growth into its business model by passing along annual rent increases to its tenants while collecting property management fees.
Moreover, because marijuana remains illegal at the federal level, Innovative Industrial’s sale-leaseback program ensures it will have a steady list of customers waiting to participate. Multistate operators (MSOs) like PharmaCann and Cresco Labs — two of the REIT’s largest tenants representing 13% and 8%, respectively, of its total rental revenue — struggle to access basic banking services due to regulatory prohibitions. Innovative Industrial is able to step into the void by purchasing facilities for cash and immediately leasing them back to the seller. The MSOs get much-needed cash, and the REIT gets more long-term tenants.
A very profitable operation
Just like other REITs, Innovative Industrial is obligated to return 90% of its profits back to its shareholders. That’s been a pretty good deal for investors, as the REIT has quadrupled its dividend since going public. In fact, it’s increased the payout 11 times since it first initiated a dividend.
The payout of $5.60 per share currently yields a healthy 2.3% annually, higher than the S&P 500‘s current average of 1.3% and a a happy byproduct of the capital appreciation shareholders have also enjoyed. As noted earlier, Innovative Industrial’s stock has exploded since its IPO, and it’s up over 30% in 2021 alone. In comparison, the rip-snortin’ S&P 500 is up less than 20% year-to-date.
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