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Finance

3 Cannabis Stocks that Pay Dividends

The legalization of cannabis is one of the biggest steps in the industry’s growth in the United States. In May 2020, the U.S. Congress approved the Cannabis Banking Act, after passing a $3 trillion COVID-19 stimulus package. The Democratic Party-controlled House of Representatives also cleared the MORE Act in early December, which would decriminalize marijuana at the federal level and implement radical regulatory changes regarding  cannabis. The Cannabis Banking Act and the MORE Act are awaiting passage in the U.S. Senate, which is far more likely now that Democrats have gained control of the Upper Chamber.

So, U.S. pot companies appear to be on the verge of massive growth ahead of Joe Biden’s inauguration as the next U.S. president. Some cannabis companies will also reward shareholders with handsome dividends. We believe that even companies that cater indirectly to the cannabis sector are likely to gain immensely from the positive regulatory landscape.

The prospect of dividend income can be viewed as  a hedge of sorts against remaining uncertainty associated with the industry’s growth prospects. As such, Altria Group, Inc. (MO), Scotts Miracle-Gro Company (SMG), and Innovative Industrial Properties, Inc. (IIPR) are three such stocks that investors should consider betting on right now.

Altria Group, Inc. (MO)

MO is involved primarily in manufacturing and selling cigarettes, smoke-free products, and  wine in the United States. MO holds a 45% stake in Cronos, a leading cannabinoid company. Through its investment in Cronos, MO aims to access the Canadian/North American cannabis market. It also seeks to help Cronos  launch vape products with cannabinoids.

MO has consistently paid quarterly dividends since 1987. On December 16, the company declared a dividend of $0.86, which cumulated with an annual dividend of $3.44, representing an 8.37% yield. The company’s three- and five-year dividend CAGRs stand at 10.2% and 9.4%, respectively. Over the past six years, MO has returned more capital to shareholders through its dividend payments  than 94.1% of other dividend-paying U.S. stocks in the StockNews.com universe.

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During the third quarter ended September 30, 2020, MO.s net revenue climbed 3.9% year-over-year to $7.1 billion. Its EPS, at $1.19 for the quarter, was flat to the previous period.  The fair value of MO’s investment in Cronos was nearly 20% less than its carrying value of $1.0 billion on September 30, 2020. However, MO believes that this decline is temporary, and it will  continue to monitor its investment in Cronos.

The Street estimates revenue for the quarter ended December 2020 to be $5 billion, indicating a 3.70% increase year-over-year. Meanwhile, its EPS is likely to fall 1% to $1.01.

MO lost 19.1% in the past year to close yesterday’s trading session at $41.11. The stock climbed 2.2% during the past six months.

How does MO stack up for the POWR Ratings?

B for Trade Grade

B for Buy & Hold Grade

B for Industry Rank

B for overall POWR Rating

The stock is also ranked #6 stock in the 11-stock Tobacco industry.

Scotts Miracle-Gro Company (SMG)

SMG is primarily involved in manufacturing, marketing, and selling consumer lawn and garden products. The company also offers lawn-related weed and weed control products for home areas. SMG is a leading retailer of hydroponic supplies in the United States; it sells supplies required to grow indoor cannabis (and other plants).

SMG began  paying dividends in 2005. The company declared a dividend of $0.62 per share on December 10. This result represents an annual dividend of $2.48 and a yield of 1.10%. SMG has generated a higher  trailing-twelve-month cash flow  than 78.5% of U.S. dividend stocks in the stockNews.com universe. The company’s three- year and 5-year dividend  CAGRs stand at 5.2% and 5.5%, respectively.

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SMG’s revenue for the fourth quarter ended September 30, 2020 surged 78.8% year-over-year to $890.3 million. Its EPS for the quarter was $0.07, versus  a loss of $1.04 per share posted in the same period last year. The company also announced that it has signed a non-binding letter-of-intent to acquire a 50% equity stake in the Bonnie Plants business.

Analysts expect revenue for the quarter ended March 31, 2021 to rise 13.2% year-over-year to $1.6 billion. Its EPS is likely to grow at the rate of 10.1% per annum over the next five years.

SMG ended yesterday’s trading session at $223.95, surging 104.4% over the past year. Over the past six months, the stock surged 61.7%.

The company is rated “Strong Buy” in our POWR Rating system. It also has an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and a “B” for Industry Rank. In the 66 stock Home Improvement & Goods, it is ranked #6.

Innovative Industrial Properties, Inc. (IIPR)

IIPR is an American Real Estate Investment Trust that acquires, owns, and manages specialized properties leased to established state-licensed medical marijuana operators. The company has a total of 66 properties spanning 5.4 million rentable square feet across 17 states.

The company has been paying dividends since 2017. On December 14, IIPR declared a cash dividend of $1.24 per share. The company will pay this dividend on January 15 to stockholders of record as of December 31. This represents and  an annual dividend of $4.96 and a yield 2.65%. IIPR has generated more cash flow over the past 12 months than 96.8% of U.S. dividend stocks in the stockNews.com universe.

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During the third quarter ended September 30, 2020, IIPR’s total revenues jumped  197% year-over-year to $34.3 million, driven by acquisition and the leasing of new properties, additional tenant improvement allowances, and  construction funding at existing properties. Its EPS for the quarter climbed to $0.86 from $0.55 posted in the same period last year.

The consensus revenue estimate for the quarter ended December 31, 2020 is $38.5 million, representing  a 117.9% year-over-year increase. Its EPS is likely to grow 41% to $1.10 during the period.

IIPR ended yesterday’s trading session at $189.77, surging 123.7% over the past year. Over the past six months, the stock advanced 109.5%.

We support the outlook with a Buy in the POWR Ratings. It holds “A” in Trade Grade, Buy & Hold Grade, and a “B” for Peer Grade. It is also the #4 ranked stock in the 22-stock REITs – Industrial industry.

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MO shares were trading at $41.19 per share on Friday afternoon, up $0.08 (+0.19%). Year-to-date, MO has gained 0.46%, versus a 0.55% rise in the benchmark S&P 500 index during the same period.

About the Author: Namrata Sen Chanda

Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More…

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