We recently compiled a list of the 12 Best REIT Dividend Stocks To Buy for 2024.In this article, we are going to take a look at where Innovative Industrial Properties, Inc. (NYSE:IIPR) stands against the other REIT dividend stocks.
In the United States, real estate investment trusts (REITs) play a significant role in the real estate sector and the overall financial system. Equity REITs pool funds from numerous investors to purchase and manage income-generating properties, such as residential, commercial, and industrial real estate. These REITs are publicly traded on major stock exchanges, allowing investors to earn steady income—primarily from rental revenues—without the need to personally manage or fund the properties. However, REIT share prices can fluctuate and are highly responsive to shifts in interest rates.
The introduction of the REIT structure transformed real estate investing. Over time, REIT indices have adapted to reflect the sector's evolution. With the growth and increasing significance of new segments, the broader REIT landscape has changed considerably, yet it continues to provide attractive income opportunities. The real estate market has become more diverse, with different segments offering distinct risk and return dynamics.
It is frequently seen that many investors remain cautious about real estate and REITs, partly due to challenges faced by the retail and office subsectors. Additionally, the sector's reliance on significant leverage makes it vulnerable to rising interest rates. However, recent performance trends have caught investors' attention. Over the past three months ending November 2024, investors in the US have allocated around $4.5 billion to REIT and real estate-focused ETFs, surpassing investments in any other sector, according to a report by Bloomberg. This growing interest may be attributed to unique features of the REIT market and broader macroeconomic developments.
According to a report by Nareit, as the third quarter of 2024 begins, it signals nearly two years of disparity between REIT valuations and those of private real estate. Although the gap between the two is gradually narrowing, the prolonged adjustment period still presents a compelling opportunity for institutional investors to incorporate REITs into their real estate investment strategies. The report further highlighted the performance of REITs in recent years. Since 2022, REIT performance has generally moved inversely to changes in the 10-year Treasury yield. In the third quarter of 2024, REITs delivered strong total returns as the 10-year Treasury yield declined, leading to significant reductions in the REIT implied cap rate and narrowing the public-private cap rate spread. However, since the end of the third quarter, a notable rise in the 10-year Treasury yield has caused REIT total returns to decline, likely widening the cap rate spread again.
If this inverse relationship continues, interest rates will remain a key factor in the valuation adjustment process. Narrowing the public-private cap rate gap is crucial for reigniting property transactions and offers real estate investors an opportunity, as it could drive REIT outperformance into 2025. If REITs sustain their momentum and private property investors maintain their gradual increases in appraisal cap rates, the commercial real estate market may finally resolve its valuation disparity between public and private assets.
REITs are an attractive option for income-focused investors. By law, they must distribute at least 90% of their taxable income to shareholders as dividends. Unlike many other companies, REITs typically do not retain earnings, which often results in higher yields compared to other equity investments. According to Tower Financial Group of Wells Fargo Advisors, in 2023, equity REITs offered an average yield of 3.9%, significantly outpacing the 1.4% average yield of stocks in the broader market. In view of this, we will take a look at some of the best dividend stocks in the REIT sector.
Our Methodology:
For this list, we scanned Insider Monkey's database of 900 hedge funds as of Q3 2024 and picked REIT companies that pay regular dividends to shareholders. Next, we narrowed down 12 companies that are popular among elite funds at the end of Q4 and ranked them in ascending order of the number of funds that have stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
Aerial view of a large REIT building complex, its facade reflecting the city skyline.
Innovative Industrial Properties, Inc. (NYSE:IIPR)
Number of Hedge Fund Holders: 13
Innovative Industrial Properties, Inc. (NYSE:IIPR) is a California-based company that facilitates the expansion of the legal medical cannabis industry by providing investors with a real estate-focused way to gain exposure to the cannabis market. The company acquires regulated cannabis facilities from licensed operators nationwide and then leases them back through long-term triple net lease agreements. Currently, it owns 108 properties across 19 states. The REIT focuses exclusively on the medical cannabis sector, which is more extensively legalized and regulated than the recreational market. Its operational model achieves several objectives. Since the start of 2024, the stock has surged by over 2.4%.
Innovative Industrial Properties, Inc. (NYSE:IIPR) reported mixed earnings in the third quarter of 2024. The company posted revenue of $76.5 million, which fell by 2% from the same period last year. The revenue also beat analysts' estimates by $877,000. The company reported adjusted funds from operations (AFFO) of $64.3 million and normalized funds from operations (Normalized FFO) of $57.8 million.
Innovative Industrial Properties, Inc. (NYSE:IIPR)'s cash position also remained strong. It ended the quarter with over $147 million available in cash and cash equivalents, up from $140 million in the prior-year period. Its total assets amounted to $2.4 billion. The company currently pays a quarterly dividend of $1.90 per share and has an attractive dividend yield of 7.32%, as of December 12. It is one of the best dividend stocks on our list as the company has been growing its payouts for eight consecutive years.
As of the close of Q3 2024, 13 hedge funds in Insider Monkey's database held stakes in Innovative Industrial Properties, Inc. (NYSE:IIPR), which remained unchanged from the previous quarter. The total value of these stakes is more than $102 million.
Overall IIPR ranks 11th on our list of the best REIT dividend stocks to buy for 2024. While we acknowledge the potential of IIPR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than IIPR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
