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An investment in this REIT 5 years ago will pay a 38% dividend today


When income investors buy a real estate investment trust (REIT), one of the things they hope is that the stock will perform well enough for the company to raise its quarterly dividend for many years, raising the bar. the investor’s annual return.

Usually, dividends increase by 3 to 5 cents a year, and investors are happy if they can receive it consistently. For example, a $1 dividend on a $25 stock that increases the dividend by 5 cents per year can turn a 4% yield into 5% in about 5 years.

But what if in 2017 you heard that you could buy a REIT that after 5 years would give you a 38% return on your purchase price? You would likely think that the stock would eventually become a giant yield trap whose price would drop to penny stock status. But not so.

Meet Renew Industrial Properties Inc. (NYSE: IIPR), a specialized REIT based in San Diego, California founded in 2016. Innovative Industrial buys, leases, and subleases commercial properties to cannabis companies. On its website, Innovative Industrial Properties calls itself “The Leading Real Estate Capital Provider to the Regulated Cannabis Industry.”

As of September 30, Innovative Industrial Properties has a portfolio of 8.7 million square feet of rentable properties across 109 properties in 19 states. Two other properties are under construction.

All Innovative Industrial properties are triple leased, meaning tenants pay taxes, insurance, and maintenance. Its average lease term is 15.5 years. And while it specializes in the cannabis industry, it’s still quite diverse in that no tenant accounts for more than 14% of its total portfolio and no state accounts for more than 17% of its total portfolio. it.

At the beginning of December 2017, Innovative Industrial Properties was priced at $18.90 and pays a quarterly dividend of 25 cents per share, with an annual dividend of 5.2%.

Today, Creative Industrial Real Estate costs more than $114, with a quarterly dividend of $1.80 or $7.20 annually. The yield on that initial $18.9 share purchase is now 38%. There is no reverse divergence that artificially inflates the stock price. So how did this extraordinary productivity come about?

It’s all about revenue and earnings growth. In 2017, Innovative Industrial Properties had fourth-quarter revenue of just $2.28 million. Cash from Operations (FFO) is 18 cents per share. But every year since then, Innovative Industrial Properties has multiplied its revenue and FFO, so the stock price has increased with those increases. The following chart shows the phenomenal growth of Creative Industrial Property in the fourth quarter of every year since 2017, excluding 2022, which has only had 3 reported quarters so far:

Q4/ US YEAR

TURNOVER

FFO

2022 (Q3)

70.88 million USD

$1.97

2021

58.94 million USD

$1.75

2020

37.09 million USD

$1.26

2019

17.67 million USD

$1.09

2018

4.78 million USD

$0.34

2017

2.28 million USD

$0.18

Although even the most famous cannabis stocks have performed poorly since 2017, as their owners, Innovative Industrial Properties has a total return of 622% during that time without rollover. dividend investment and 642% on dividend reinvestment.

So will this massive dividend growth continue? If the FFO continues to rise, that could continue to generate higher dividends. But the dividend peak may have already occurred, as the dividend payout/FFO ratio currently stands at 93%.

The stock price, which hit $274 in November 2021, is now down about 58% — though revenue and FFO continue to grow. That makes Creative Industries Assets a REIT that can continue to generate high total returns in the future.

Weekly REIT report: REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it’s too late. Benzinga’s in-house real estate research team has worked hard to identify the biggest opportunities in today’s market, which you can access for free by signing up. Benzinga weekly REIT report.

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