Stocks To Watch: Top Cannabis Play Sets Up New Buy Point After 450% Run

Most cannabis stocks are well off their highs but Innovative Industrial Properties (IIPR), featured in today’s IBD 50 Stocks To Watch, is up 42% this year.


To be fair, Innovative Industrial isn’t a true cannabis stock. It’s a real estate investment trust (REIT) that focuses on the marijuana industry by leasing industrial properties to medical-use cannabis growers. As of Oct. 18, the company owned 76 properties comprising about 7.5 million rentable square feet across 19 states.

REITs aren’t required to pay the usual federal corporate taxes, if they return the lion’s share of their free operating cash flow to investors in the form of a dividend.

In September, IIPR announced a 7% hike in its quarterly dividend to $1.50 a share. That works out to $6 for the full year, for a 2.3% annualized yield. The S&P 500’s average payout, by comparison, is 1.29%.

Stocks To Watch: Big Dividends, Big Gains

So Innovative Industrial not only offers investors stock performance gains — but also a market-beating dividend. The stock plunged 71% from a mid-July 2019 high to its March 2020 Covid-crash low. But it soared 450% over the next 11 months before pausing to start a cup base.

IBD Stock Checkup assigns IIPR a 97 Composite Rating, which gives investors a quick way to gauge a stock’s key growth traits. That puts it among the leaders in the 181-stock property REIT group, which includes Extra Space Storage (EXR) and Stag Industrial (STAG).

A 96 Earnings Per Share Rating, part of the overall composite score, also puts IIPR among the top stocks to watch in the group. It reflects a five-year compound earnings growth rate of 129%. Analysts expect funds from operations (FFO), used by REITs to define cash flow, to grow 36% this year and another 36% the next.

On the technical side, a 92 Relative Strength Rating places Innovative Industrial stock in the top 8% of all stocks. But its relative strength line, which compares a stock’s performance to the S&P 500, has turned slightly lower. An upturn back to new highs would be a bullish sign.

IIPR stock is testing its 10-week moving average for the first time since a mid-October breakout from a flat base, according to MarketSmith chart analysis. It could offer a buy opportunity near the 258 level, on a strong rebound off the line. However, with Tuesday’s downgrade of the current outlook for stocks, new buys no doubt carry more risk.

Shares also have fallen below a 253.71 buy point in the prior base. The buy zone tops out at 266.40.

Follow Nancy Gondo on Twitter at @IBD_NGondo


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