Dividend stocks have proved to be superior investments over the past 100 years. There has never been a decade when income stocks on the S&P 500 did not generate positive returns, even while non-dividend stocks were posting negative returns. Yet do cannabis stocks with dividends hold the same potential?
The universe of dividend-paying cannabis stocks is pretty small. Most marijuana companies are still trying to figure out how to negotiate legalization and regulation just so they can survive. Investors still have to be cautious about where they put their money. Yet if they open their lens a little wider, there are numerous excellent dividend-paying cannabis stocks they can invest in.
Innovative Industrial Properties (IIPR)
It is no surprise that real estate investment trust (REIT) Innovative Investment Properties (NYSE:IIPR) tops the list of top income-generating marijuana stocks. Because it is organized as a REIT, it is required to pay out most of its profits as dividends. IIP’s distribution is currently $7.20 per share for the year and offers a mouth-watering yield of 9.2%.
It was the first REIT to own, manage, and lease cultivation and processing properties for the medical marijuana industry. At the end of June, Innovative Industrial owned 108 properties across 19 states with approximately 8.9 million rentable square feet. IIP is also a triple net-lease REIT, which means its tenants pay for insurance, taxes, structural repairs, and maintenance.
These types of REITs are popular investments because they typically provide lower risk and steadier streams of income. IIP also also provides steady distribution growth. The quarterly distribution was just $0.15 per share at its IPO in 2016. Today it is $1.80 per share. That equates to a 42% compounded annual growth rate.
With long-term leases averaging 15 years, Innovative Industrial Properties is assured of steady profits for years to come. That makes it one of the best cannabis stocks for your portfolio.
Scotts Miracle-Gro (SMG)
Scotts Miracle-Gro (NYSE:SMG) is best-known for its lawn care products. Nowadays it also has a reputation as a cannabis stock. But Scotts doesn’t sell marijuana flower, rather it sells to the industry the tools of the trade.
Its Hawthorne unit is a picks-and-shovels business. Like the Gold Rush merchants who sold miners tools they needed to dig for gold, Hawthorne sells hydroponics equipment to the marijuana industry looking to grow green gold. But it suffers from the malaise affecting the broader cannabis industry.
Fiscal third quarter segment revenue tumbled 40% from last year to $93 million. It has high debt and possesses inventory acquired when inflation was rampant and commodity costs skyrocketed. Scotts, though, sees tailwinds approaching. It is paying down debt and is working through the high-cost inventory.
Yet Scotts is looking to calve off Hawthorne. After getting the business back to profitability by the end of the fiscal year, it wants to form a partnership or have it operate as standalone company. Scotts says it will maintain a controlling ownership interest, but it’s still early days on the plan.
So why buy Scotts Miracle-Gro? The stock remains discounted and offers a marijuana kicker with shares trading for 16x next year’s earnings and going for a fraction of sales. And while the stock traded at a lower price-to-earnings ratio last year, this is still a level not seen since 2015.
The lawn care and marijuana stock is maintaining its dividend of $2.64 per share that yields 4.7% annually. Scotts also sees no need to sell stock, so investors won’t be diluted.
Scotts Miracle-Gro is a cheap stock that will give you exposure to a cannabis business on the mend. And Hawthorne may soon become a stock you’ll be able to own outright.
Constellation Brands (STZ)
Constellation Brands (NYSE:STZ) was an early investor in marijuana. The Corona beer owner’s initial $4 billion investment in Canopy Growth (NASDAQ:CGC) in 2017 set off the race of mega-corporations partnering with cannabis companies. Yet the brewer realized it was too early. CEO Bill Newlands recently said, “that was a horrible investment that we made.”
Canopy Growth lost 99% of its value from its 2021 high. It trades for pennies because Canada bungled legalization. High hurdles and bureaucratic red tape created costly delays for pot stocks. Even today, illegal marijuana is cheaper to buy than legal marijuana.
But Constellation isn’t giving up on Canopy Growth, even if won’t invest in the space anymore. Newlands still thinks marijuana will eventually be big and Constellation is keeping its stake in the cannabis company. Although, Newlands also said: “Hopefully it’s been made crystal clear that there’s no more investment from Constellation in that particular arena.”
The brewer is focusing on building its portfolio of beer, wine, and spirits instead. Corona recently became the top-selling beer in the U.S. after Anheuser-Busch InBev (NYSE:BUD) bungled a controversial marketing campaign, losing 25% or more of its sales in the aftermath. Because Corona and Modelo were already rising fast, Constellation could seize on its rival’s miscue.
The brewer’s shares are up 15% year to date, but there is more room to run. Its dividend yields a modest but healthy 1.3% annually. Constellation Brands serves up a heady opportunity for growth while waiting for cannabis to make its comeback.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
