Investors are scouring the world for opportunities in cannabis, but with a limited number of spaces available, many people have missed out on these lucrative investments. Looking at Canada’s example as an industry leader will show how this is just the beginning and there are still thousands waiting to get into what could be one of the most promising markets in recent memory.
In 2019, if you invested $2,500 in Innovative Industrial Properties (iipr stock), this is how much you would have today. iipr stock has a market cap of $1.7 billion and an enterprise value of $1.8 billion.
You’d make a lot more money than if you’d put your money in an index fund.
When deciding which stocks are worth owning for decades, it’s important to consider a company’s prior performance in order to assess its merits. When it comes to a young company like Innovative Industrial Properties (NYSE:IIPR), a handful of years might be all it takes to lay the groundwork for a fortune.
The dividend is a key element of this stock’s attractiveness as a real estate investment trust (REIT), but its forward annual dividend yield is just 2.31 percent. Is this to say that investors who bought a few years ago should be unhappy with the company’s dividend growth? Certainly not. They should, in fact, be ecstatic. This is why.
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What is it about Innovative Industrial that appeals to you?
Innovative Industrial’s business model in late 2019 is the same as it is now. Its concept effectively tackles the cannabis industry’s most vexing problem: a lack of finance. Because marijuana remains illegal on a federal level in the United States, conventional financial institutions are unable (or unwilling) to cooperate with cannabis firms in need of banking services or development loans.
As a result, businesses need a plan B for raising finance, which is where Innovative Industrial comes in.
Cannabis firms may own property, which is a store of value, in places where cannabis is legal. Innovative buys their property, providing them with a much-needed financial infusion. The seller then signs a lease for the property, and Innovative serves as the landlord. After everything is said and done, Innovative has a new facility and a steady stream of cash from the lease, which it may use to save for another buyout.
This company strategy is quite lucrative, and there are several potential consumers. Furthermore, its renters’ weighted average lease period is 16.7 years, and its occupancy rate is 100 percent since each new acquisition is already leased out to the prior owner. Furthermore, Innovative Industrial’s portfolio provides very stable rental revenue, resulting in rock-solid cash flows with which it may distribute money to investors in the form of a dividend.
Several individuals have become much wealthier as a result of this stock.
If you invested $2,500 in the stock on Nov. 1, 2019, it would have cost you $77.41, implying that at its current price of roughly $275, you’d have an investment of around $8,849 at face value, assuming you accepted the dividend payments and spent them elsewhere. That would be a 254 percent return, which is nothing to laugh at.
In comparison, if you purchased an index fund like the SPDR S&P500 ETF Trust instead, your total return would be roughly 58 percent, or $3,925 if you reinvested every penny of the dividend. However, that’s significantly above the market’s long-term average returns of about 10%, so the ETF is unlikely to outperform the market for many years in a row.
YCHARTS TOTAL RETURN LEVEL DATA SPY
When you include in Innovative Industrial’s dividend payments and dividend growth, its return smashes the market even more. The corporation paid a $0.78 per share dividend in September of last year, but by September of this year, the payout had increased to $1.50. That implies the dividend has grown at an amazing 38.68 percent compound annual growth rate (CAGR).
If you put every dividend payment into purchasing additional shares, Innovative would have given you a 300 percent total return if you acquired it two years ago. As a result, you’d have an investment worth more than $9,500, which isn’t terrible.
More expansion is on the way.
Given that this stock’s dividend is fast increasing in tandem with its share price, many investors may be asking whether it’s worth investing in now, and the answer is yes. The marijuana business in the United States is predicted to reach almost $46 billion by 2025, according to Marijuana Business Daily, which is more than twice the market size of $20.1 billion in 2020. And it implies that Innovative’s services will be in high demand.
It completed four new property purchases in the third quarter of this year alone, which will shortly begin to generate money. There will undoubtedly be more. The firm will have no issue paying its dividend or attracting new tenants seeking for cash as long as it can collect rent, which is just one more reason why Innovative Industrial is one of my favorite companies.
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