Investors should focus on FFO when assessing a REIT's dividend safety. FFO excludes one-time gains and losses and non-cash amortization charges, which can obscure accounting profitability. Thus, it can better reflect REIT performance.
IIP announced excellent FFO growth in its most recent quarter, which covered the last three months of 2023. It was $2.07 per diluted common share, up from $1.92 last year. The company's rental revenue rose 12% to $78.6 million.
The REIT collected 100% of its operational portfolio rent throughout the quarter, which is outstanding. So far this year, it's 100% through February. This is notable because the REIT has had tenant issues. One of the biggest hazards of investing in IIP is that marijuana producers aren't always safe tenants.
IIP pays a $1.82 quarterly dividend, yielding 7.4%. At that rate, investors would need to invest $13,500 to earn $1,000 in dividends. S&P 500 stocks average less than 1.4% yield. To earn $1,000 in annual dividends at that low return, invest over $71,000. IIP seems like a good dividend stock.
The REIT's $1.82 quarterly distribution is less than the company's FFO from previous quarter, suggesting it is safe, yet it is a few pennies higher than IIP's $1.80 last year. In recent years, IIP rewards have increased. Due to marijuana business challenges, gains slowed.
The previous few years have been turbulent for IIP and other marijuana enterprises. A lack of industry reform and tough economic conditions have hurt cannabis stocks, with IIP down more than 40% in three years.
IIP stock trades at 16 times earnings and 1.4 times book value. While not a bargain, it's not an expensive stock to hold. A high yield gives investors a lot for their money. If you're bullish on marijuana and can handle the risk, IIP may be a good dividend stock. If interest rates fall, REITs become more appealing, or marijuana legislation passes, IIP's valuation might rise.
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