Innovative Industrial Properties, Inc. (NYSE:IIPR) stock is about to trade ex-dividend in 3 days time. You can purchase shares before the 27th of September in order to receive the dividend, which the company will pay on the 15th of October.
Innovative Industrial Properties's upcoming dividend is US$0.8 a share, following on from the last 12 months, when the company distributed a total of US$2.4 per share to shareholders. Calculating the last year's worth of payments shows that Innovative Industrial Properties has a trailing yield of 3.3% on the current share price of $95.21. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 90% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. While Innovative Industrial Properties seems to be paying out a very high percentage of its income, REITs have different dividend payment behaviour and so, while we don't think this is great, we also don't think it is unusual. A useful secondary check can be to evaluate whether Innovative Industrial Properties generated enough free cash flow to afford its dividend. It distributed 50% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Innovative Industrial Properties's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why we're optimistic about Innovative Industrial Properties's earnings, which have ripped higher, up 937% over the past year. While we'd be remiss not to point out that a year is a very short time in dividend investing, it's an encouraging sign so far. Earnings per share are growing at a rapid rate, yet the company is paying out more than three-quarters of its earnings.
One year is not very long in the grand scheme of things though, so we wouldn't draw too strong a conclusion based on these results.
We'd also point out that Innovative Industrial Properties issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last two years, Innovative Industrial Properties has lifted its dividend by approximately 128% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Should investors buy Innovative Industrial Properties for the upcoming dividend? We like Innovative Industrial Properties's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Innovative Industrial Properties looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Ever wonder what the future holds for Innovative Industrial Properties? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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