This share has almost tripled its dividend in 3 years

If you’re looking for safe dividend stocks to buy and hold, you might be tempted to stock up on big names like McDonald’s Where Coca Cola. Although they have an excellent track record, the former has increased its dividend by only 19% in three years, and the latter has increased its payout by 10% during this period.

In comparison, a stock that has been much more aggressive in its payout increases is Innovative industrial properties (IIPR 4.94%). In just three years, it has more than doubled its dividend payouts. Could it be an undervalued dividend stock, or is it growing too fast for its own good?

The growth of Innovative Industrial Properties has been incredible

Innovative Industrial Properties (IIP) is a real estate investment trust (REIT) that helps provide funds to cannabis growers, who may otherwise struggle to raise funds due to the federal marijuana ban in the United States . Through sale-leaseback agreements, the REIT obtains a potential long-term tenant, while the producer receives an influx of cash to help grow its business.

Over the years, the REIT has accumulated properties and expanded its tenant base. At the end of 2021, it had 103 properties spanning multiple states, including major cannabis markets such as California, Florida, Illinois, Massachusetts, Michigan, and Pennsylvania. Just four years earlier, at the end of 2017, it had just five properties.

IIP’s explosive growth has generated significant profits along the way; net income of $114 million in 2021 increased 73% year over year and 386% over a two-year period.

The dividend has increased by more than 1,000% since 2017

IIP has also increased its dividend payouts at an equally incredible rate. Today, its quarterly dividend is $1.75 per share. This brings in 6.5% per year and is well above the S&P500 average of only 1.4%. When the REIT began paying dividends in 2017, its first two payouts were just $0.15 per share. Since then, the company has increased its payout by 1,067%.

Even over a period of just three years, the payment has increased by 192%, almost tripling during this period. IIP has increased its payouts several times a year as it has been aggressive in returning profits to shareholders.

Can the company maintain the dividend?

Funds from operations (FFO) is a key indicator for REITs when evaluating their dividend payouts. It is a more reliable measure than simple income because it excludes one-time cash items. In the first three months of 2022, IIP reported an FFO per share of $1.86, which is slightly higher than the $1.75 it pays out in dividends. And over the years, the REIT’s dividend increases have not outpaced its growth in FFO per share:

IIPR FFO per share (quarterly). Data by Y charts.

Another way to look at dividend safety is to compare free cash flow to total dividends paid. And IIP has had enough cash available to support its payments over the years:

Fundamental chart

Basic table. Data by Y charts.

IIP could be a gem for dividend investors

IIP has increased its payouts aggressively, and there’s even more room for it to grow as the cannabis industry grows and more states legalize it. The sector hasn’t generated much excitement lately and the stock has fallen 41% in the past year. But that’s still a long way from the 65% drop Horizons Marijuana Life Sciences ETFs had during that time, and the fundamentals of the business are still incredibly strong.

If you’re looking for a fast-growing dividend that pays you better than McDonald’s, Coca-Cola, or other ultra-safe income stocks, IIP could be a great option.