Dividend investors often gravitate towards certain sectors that are considered the safest in the market, including well-known sectors such as industrials or consumer staples.
While cannabis is still in the early stages, there are some companies with exposure to cannabis that offer investors exposure to the high growth potential of cannabis, but also pay dividends to shareholders.
Investors often have to make the choice between growth or dividends, but with cannabis-related stocks, sometimes they come from the same place.
The three stocks highlighted here have very different ways of benefiting from cannabis utilization, and all three offer different growth paths and levels of dividend safety and yield.
Our first stock is an REIT that’s nearly a pure play on the industry, specializing in properties used to cultivate and sell cannabis products.
The trust is widely regarded as the fastest-growing REIT in the market today, but that hasn’t stopped it from being a serious income stock very early on in its life.
The trust also collected 100% of its contracted rent during the quarter, in contrast to many REITs with pandemic-stricken customers that are struggling with sluggish demand.
We currently project 25% FFO-per-share annual growth for the next five years as IIPR continues to raise capital and expand aggressively, which is helping it to grow its FFO on a dollar basis.
IIPR has raised its dividend payout very quickly since becoming publicly-traded, and we project it will pay out 85% of its FFO this year in dividends.
Our next stock is one that many investors may find surprising in its access to the cannabis sector, Scotts Miracle-Gro.
Scotts’ products began to be used in the production of cannabis in earnest a few quarters ago, and shares have skyrocketed on the growth potential.
The company’s first quarter earnings report showed its first-ever profit during the what is the slowest time of year for Scott’s, highlighting the strength the company has seen in recent quarters.
Demand was strong in all categories of indoor growing products, as consumers stayed at home and tended gardens and indoor plants with Scotts products.
Earnings-per-share came to 39 cents, which was up sharply from a loss of $1.12 per share in the year-ago period.
Scotts scores very high for dividend safety, with our projection of the stock’s payout ratio at just 30% for this year.
Constellation Brands is perhaps another surprising cannabis stock, as it is mostly known for its dominating beer and spirit brands.
Constellation’s fourth quarter earnings results showed a modest 2.6% increase in sales to $1.95 billion, as soaring beer sales offset declining wine and spirits sales, which was attributable to divestitures.
We expect 5% annualized growth from Constellation in the coming years, fueled by ever-stronger demand from its core beer portfolio.
Like Scotts, Constellation scores high for dividend safety, with its payout at 30% of earnings for the year.
Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.
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