We last looked at Innovative Industrial Properties (NYSE: IIPR) in Safety Net 11 months ago. At the time, the real estate investment trust was yielding 7% and received an “A” for dividend safety.
Since then, the company has maintained its quarterly dividend at $1.90.
While the dividend has remained stable, the same can’t be said for the stock price. It’s been cut in half in the past year.
That has jacked the yield all the way up to 13.6%.
Can Innovative Industrial Properties keep paying this double-digit yield?
When we last evaluated the landlord to cannabis operators, it was steadily growing its funds from operations (FFO), which is the measure of cash flow used by REITs.
It was estimated that the company would bring in $250 million in FFO last year. Instead, FFO totaled $231 million. This is important – not because it fell short of the estimate, but because it was slightly lower than 2023’s figure of $232 million.
Lower FFO earns a company a one-grade penalty in the Safety Net model.
Making matters worse, FFO is forecast to decline again this year to $191 million.
That will cost Innovative Industrial Properties another point toward its Safety Net rating.
And the bad news continues… If the company’s FFO in 2025 is just $191 million, it won’t be enough to cover the expected $211 million in dividends. (I raise my payout ratio threshold from 75% to 100% for REITs, because they are required to pay out the vast majority of their earnings to shareholders. But even with the adjustment, Innovative Industrial’s 110% payout ratio is still too high.)
So that’s yet another downgrade.
Now, the company has boosted its dividend every year for nine straight years. That’s a solid track record that I’m sure it would like to extend. But it can’t afford to at the moment.
If Innovative Industrial Properties is able to get FFO growth moving in the right direction again, that would be a big plus. But until then, the dividend is at risk of being cut.
Dividend Safety Rating: D
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