If You Invested $10K In Innovative Industrial Properties After Its IPO, Here's How Much Money You Would Have Now

Are you a growth or income investor? Income investors love stocks with substantial dividends while growth investors prefer solid appreciation, but every so often a stock comes along that offers the best of both worlds.

Take a look at one real estate investment trust (REIT) with an impressive seven-year dividend and appreciation track record and see how much a $10,000 investment in December 2016 would be worth today.

Innovative Industrial Properties Inc. IIPR is a San Diego-based diversified/industrial REIT that specializes in triple-net leases and lease-backs on commercial properties with cannabis companies as its sole tenants.

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As of June 30, Innovative Industrial Properties owned 108 properties across 19 states. Of its properties, 91% are industrial, 3% are retail and 6% are combined industrial/retail. Innovative Industrial has a 99.9% occupancy rate and a 98% collection rate. Its average lease length is 14.9 years.

Innovative Industrial Properties launched its initial public offering (IPO) on Dec. 1, 2016. The opening day price was $19.15. If you invested $10,000 at that price, you would have purchased 522.19 shares. But because most people are unable to purchase shares of an IPO at its opening price on Day 1, consider if you had purchased shares at the opening price of $18.45 on Dec. 2. In that case, you would have fared even better by purchasing 542 shares.

Since that first day of trading, the share price has been volatile, falling during the first week of trading to a low of $10.85 but climbing over the next four years to a peak of $250.71 on Nov. 16, 2021. 

But the fervor that sent all cannabis stocks soaring in 2021 soon faded with the realization that it would be a long time before the companies would show consistent earnings. Innovative Properties shares went into a long, slow decline until hitting a bottom of $60.40 on April 23. Since then, shares have rebounded to a recent closing price of $73.45.

Along with its stellar appreciation, Innovative Industrial Properties has an excellent dividend growth record. The quarterly dividend has increased 14 times from $0.15 per share in 2017 to the present $1.80 per share. The annual dividend of $7.20 per share yields 9.9792%.

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If you had purchased 542 shares of Innovative Industrial Properties on Dec. 2, 2016, your $10,000 would now be worth $54,601.99, a gain of 445.91%. The average annual total return is 28.15%. The breakdown of the gain is $55 in appreciation and $27.27 in dividends.

If instead of collecting dividends you decided to reinvest them, you would now have 724.46 shares, worth $53,217.53, for an annual return of 27.67%.

A recent recommendation from the Department of Health and Human Services (HHS) to reclassify cannabis as a Schedule III substance has been supporting the cannabis sector across the board since the end of August.

In addition, Senate Majority Leader Charles Schumer (D-NY) has been trying to advance a marijuana banking bill and sent an email blast to his supporters near the end of September to encourage them to sign an online petition to legalize marijuana nationwide.

Should this pass, it would boost the cannabis industry and strengthen the earnings of Innovative Industrial's tenants, thereby indirectly supporting Innovative Industrial's occupancy and rent collections going forward.

On Sept. 21, a New Jersey judge dismissed a lawsuit filed by an investor against Innovative Industrial Properties that accused the REIT of knowing about fraudulent activities by its tenant Kings Garden. The judge ruled that the risk warnings in Innovative Industrial's securities filings made the accusations insufficient.

Despite the positive news, analysts remain skeptical. On Sept. 5, Compass Point Research & Trading analyst Merrill Ross downgraded Innovative Industrial Properties from Buy to Neutral and announced a $95 price target. The Compass view was that despite positives in the cannabis industry, it doesn't think it will help cannabis operators obtain debt financing from regulated financial institutions. In addition, growth in earnings and assets will continue to be elusive in 2024. 

The Compass Point downgrade was before Schumer attempted to get cannabis legalized at the federal level. If that occurs, cannabis companies will be able to get financing from banks rather than using much more expensive private lenders as has been the case for the past seven years. Using banks rather than private lenders will significantly lower their debts.

Given the push for nationwide legalization, investors seeking high yield and an opportunity for appreciation at present levels should consider the historical performance of Innovative Industrial Properties.   

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