2 Dividend Yield Options In The Cannabis Sector

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Research shows that the global cannabis market is expected to grow at a CAGR (compound annual growth rate) of about 23.9% and, by 2025, reach $66.3 billion. With more countries legalizing marijuana for medical and recreational use, marijuana stocks have provided strong returns, with a few paying dividends. This is helping to make cannabis stocks very popular amongst investors.

Receiving dividends is not something that comes to mind when you think of cannabis stocks, and it’s mainly due to cannabis companies not generating profits yet, with the industry still being too new. Marijuana stocks will begin to grow further with optimism that the federal government is getting closer to legalize cannabis fully. As the marijuana industry becomes more mainstream, cannabis companies are becoming profitable and paying dividends to shareholders.

The Medical Cannabis Industry

The medical cannabis industry is rapidly increasing and included in the treatment of the following:

  • HIV/AIDS
  • Cancer
  • Seizures
  • Migraines
  • Terminal illness

93% of Americans support patient access to medical-use marijuana if a doctor recommends it. In 2020, US-regulated cannabis sales grew by 52% since 2019 to approximately $20.1 billion. It’s expected to grow by over $45.9 billion by 2025.

If you’re an income investor looking for stability and diversifying your portfolio, consider investing in the following two pot investments – Innovative Industrial Properties (IIPR) or the ETFMG Alternative Harvest ETF (MJ).

Innovative Industrial Properties Inc (IIPR)

The first stock is Innovative Industrial Properties (IIPR), a real estate investment trust (REIT) with an exclusive focus on the medical cannabis industry, investing in industrial facilities and greenhouses.

IIPR was founded in 2016 and has 72 properties in its portfolio, with 6.6 million rentable square feet and a 100% occupancy rate. During the final quarter of 2020, the trust was able to collect 100% of its rent, where many other REITs could not do so during the pandemic.

The company is the only REIT related to cannabis approved for trading on US stock exchanges. This has made the stock attractive to investors since the company became publicly traded.

As a REIT (trusts that operate income-producing real-estate), at least 90% of its taxable income must get returned to shareholders as dividends to avoid paying certain taxes. Over the past three years, its dividend has soared more than 600% due to the company’s tremendous earnings growth. Currently, IIPR has a dividend yield of 3%.

Since becoming a publicly traded company, IIPR has raised its dividend payout quickly, with its funds for operations (FFO) likely to continue growing at an exceptionally high rate.

Innovative continues to grow, with a market value of $4.5 billion. They purchase freestanding industrial and retail properties directly from state-licensed medical-use cannabis companies and lease them back over the long-term (10 to 20 years). The lease gives IIPR a constant flow of income for the coming years, while the sale helps the cannabis company get going.

IIPR has been considered the fastest-growing REIT in the market today, but these claims haven’t prevented it from being a significant income stock from a very early stage.

IIPR Financial Results – Year Ending 2020

Total revenues of about $37.1 million were generated for the fourth quarter of 2020, compared to 2019’s fourth quarter generating about $17.7 million. The total revenue growth between the two quarters was 110%.

Total revenues of about $116.9 million were generated for the year ended December 31, 2020, compared to 2019 ending the year with about $44.7 million – an increase of 162%.

The increase in these two periods was driven by the following:

  • The acquisition and leasing of new properties
  • Contractual rental escalations at specific properties
  • Further tenant improvement allowances and construction funding at current properties resulting in base rent adjustments

IRR Financial Results – First Quarter 2021

About $42.9 million was generated in the first quarter of 2021, indicating an increase of 103% from the first quarter of 2020.

IIPR paid its quarterly dividend of $1.32 to stockholders in April 2021, a 32% increase from 2020’s first-quarter dividend and about a 6% increase over the fourth quarter 2020 dividend. IIPR has been paying dividends quarterly since 2017, making it an excellent option for income investors.

IIPR’s dividend yield is in the middle range, with the first quarter dividend being 32% higher than the one paid in quarter one of 2020. This shows that there’s potential for dividend growth over time.

A net income of about $25.6 million was recorded, or $1.05 per diluted share, attributed to common stockholders. Adjusted funds from operations (AFFO) got recorded at about $38.4 million, or $1.47 per diluted share.

Innovative Industrial Properties Inc (IIPR) Stock Predictions

Innovative Industrial Properties Inc (IIPR) currently trades at $184.86 as of June 2, 2021.

Analysts at Wallet Investor have predicted IIPR stock having a target share price of $292.741 over the next year. Their five year price target is $727.838 per share. They expect revenue growth of around +304.17% with the next five years. Over one year, growth potential is +62.56%.

IIPR stock has been in a bullish cycle over the last 12 months. During this period, stock in real estate and rental leasing sectors has been trendy. Because of a positive trend predicted for the future, IIPR shares are an “awesome” buy for investors over the long term for profit. The positive outlook surrounding this stock makes it an excellent addition to an investment portfolio.

ETFMG Alternative Harvest ETF (MJ)

Exchange-traded funds (ETFs) often track an index or a basket of securities. They are similar to mutual funds, but get traded like a stock on an exchange. There are currently a few marijuana ETF’s available for investors where most of them focus on a specific cannabis market.

The ETFMG Alternative Harvest ETF (MJ) debuted in late December 2017 (prior to that, it was a Latin America real estate ETF) as the world’s largest and the US’s first ETF targeting the global cannabis industry. Currently, it has about $1.7 billion in total net assets.

MJ passively follows the Prime Harvest Index, with ETF assets in holdings from top Canadian cannabis companies, such as:

  • Tilray (TLRY)
  • Canopy Growth (CGC)
  • Aurora Cannabis (ACB)
  • Cronos Group (CRON)

They also have holdings from medicinal cannabis companies such as:

  • GW Pharmaceuticals plc (GWPH)
  • Turning Point Brands, Inc (TPB)

Nearly 57% of its assets are accounted for in the top 10 holdings, with the remaining 22 stocks accounting for the rest.

The index consists of companies that get more than half their revenue from legal cannabis-related activities. Holdings also include companies that develop fertilizers, tobacco products, cannabis equipment, plant foods, or tobacco. Initially, the fund didn’t include US companies due to federal prohibitions, but after legislation changed, they were included as well.

MJ’s Canadian investments can still benefit, even though its US holdings will benefit considerably with the future decriminalization of cannabis at the federal level.

MJ currently has a dividend yield of about 2.69%, paying dividends quarterly since 2016, making it an excellent option for income investors.

MJ generates much of its yield through securities lending. There is a high demand for shares to short, and MJ meets that demand by lending out its shares. The shares lending gives them a substantial profit allowing them to distribute the received income to shareholders.

ETFMG Alternative Harvest ETF (MJ) Stock Predictions

ETFMG Alternative Harvest ETF (MJ) currently trades at $21.62 as of June 2, 2021.

Analysts at Wallet Investor have predicted MJ having a one-year target share price of $27.739 with a five-year target of $52.419 per share. They expect growth of around +142.34% over the next five years. Over one year, the return potential is +28.24%.

MJ shares have been in a bullish cycle over the last 12 months. Because of a positive trend predicted for the future, MJ shares are a “very good” buy for investors over the long term for profit. The positive outlook surrounding this share makes it an excellent addition to an investment portfolio.

Conclusion

Considering the recent regulatory changes that have taken place in the United States, marijuana stocks have become quite exciting for investors. Because of this, stocks that provide dividend options within this sector have enjoyed extra interest from investors. With traditional REITs like IIPR, you can expect forward-looking dividend growth potential.

Investors can now get exposure to the US cannabis market as opposed to the Canadian sector. Cannabis ETFs can be an excellent place to start a position due to the leading marijuana stocks trading at lower levels currently.

As the cannabis industry continues to rise, more stocks will likely start paying dividends. Several people rely on marijuana products for relaxation or medical treatment. The industry will only grow over time, giving plenty of opportunities for investors looking for income.

Also read:

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