Dividend stocks remain a popular vehicle for income-oriented investors, offering the dual appeal of regular cash flow plus potential capital appreciation. Cannabis-focused real estate firm Innovative Industrial Properties (NYSE:IIPR) certainly fits that profile – its ~16% dividend yield highlights the income side of the equation.
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The catch is that such a high yield is tied to a tough backdrop. IIPR is down about 28% over the past year as the cannabis sector struggles with weak operator liquidity and stalled federal rescheduling efforts.
At the same time, policy developments offer a potential counterbalance. Those hoping for a shift from Schedule I to Schedule III (which would classify marijuana as a less dangerous drug) can look to movement on both the executive and legislative fronts. Back in August, President Trump noted that his administration is weighing executive action, while parallel efforts in Congress aim to advance the same change. Such a modification, were it to occur, could be a meaningful boost for IIPR.
Despite the hiccups and the uncertainty around timing, top investor Julian Lin still believes the company’s elevated dividend yield makes it worthwhile to stick around.
“The company is not yet out of the woods, but the generous dividend yield helps make it easier to wait,” explains the 5-star investor, who is among the top 1% of all stock pros covered by TipRanks.
Lin, like many others, remains hopeful that rescheduling eventually materializes. But even if that catalyst doesn’t arrive soon, the investor still sees supportive fundamentals. He highlights the company’s balance sheet as its “single most important positive factor.” Compared with peers carrying 5x–6x debt-to-EBITDA, IIPR’s outstanding debt of $341.2 million translates into a much lower ratio of roughly 1.5x. “The conservative leverage ratio creates a large ‘margin of safety’ from a financial solvency perspective,” emphasizes Lin.
As for the high dividend yield, Lin acknowledges he was surprised the company chose not to trim the payout – cash that could have been redirected toward portfolio diversification. Still, he remains unconcerned about a potential refinancing squeeze, again pointing to IIPR’s conservative leverage profile.
Moreover, even if the entire cannabis sector suffers from restructuring debt and lease arrangements, Lin believes that IIPR “has already priced in much of the worst.”
“I reiterate a Strong Buy rating, emphasizing its margin of safety, high yield, and upside potential despite sector uncertainties,” Lin sums up. (To watch Lin’s track record, click here)
Wall Street, for now, remains more cautious. With 1 Buy, 2 Holds, and 1 Sell, IIPR stock carries a Hold (i.e., Neutral) consensus rating. Still, the average price target of $61.33 suggests ~28% upside over the next 12 months. Based on the current dividend yield and the expected price appreciation, the stock has a 43.5% potential total return profile. (See IIPR stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.