This ~16%-Yielding Dividend Stock Is a "Strong Buy," Says Top Investor

Dividend stocks remain a popular vehicle for income-oriented investors, offering the dual appeal of regular cash flow plus potential capital appreciation. In the case of Innovative Industrial Properties (NYSE:IIPR), the current yield of ~16% underscores the income side of the equation, but caution is warranted.

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IIPR stock has fallen ~28% over the past year, as the cannabis sector continues to struggle with weak operator liquidity and stalled momentum on federal cannabis rescheduling. Yet, for some investors, that combination of an elevated yield and a depressed share price may hint at a buying-the-dip opportunity.

And there are developments that keep that thesis alive. Those eager for rescheduling from Schedule I to Schedule III (which would classify marijuana as a less dangerous drug) can point to recent executive and legislative signals. Back in August, President Donald J. Trump noted that his administration is weighing executive action, while parallel efforts in Congress aim to advance the same shift.

Such a modification, were it to occur, could be a significant boost for IIPR, an REIT that bills itself as "the leading provider of real estate capital for the regulated cannabis industry."

Despite the hiccups and the uncertainty around timing, top investor Julian Lin still believes the company's elevated dividend yield makes it worthwhile to stick around.

"The company is not yet out of the woods, but the generous dividend yield helps make it easier to wait," explains the 5-star investor, who is among the top 1% of all stock pros covered by TipRanks.

Lin, like many others, remains hopeful that rescheduling eventually materializes. Such a change would meaningfully improve the financial health of the REIT's tenants and, by extension, IIPR. Even if that catalyst doesn't arrive soon, the investor still sees supportive fundamentals. He highlights the company's balance sheet as its "single most important positive factor."

Compared with peers carrying 5x–6x debt-to-EBITDA, IIPR's outstanding debt of $341.2 million translates into a much lower ratio of roughly 1.5x.

"The conservative leverage ratio creates a large 'margin of safety' from a financial solvency perspective," emphasizes Lin.

As for the high dividend yield, Lin acknowledges he was surprised the company chose not to trim the payout – cash that could have been redirected toward portfolio diversification. Still, he remains unconcerned about a potential refinancing squeeze, again pointing to IIPR's conservative leverage profile.

Moreover, even if the entire cannabis sector suffers from restructuring debt and lease arrangements, Lin believes that IIPR "has already priced in much of the worst."

"I reiterate a Strong Buy rating, emphasizing its margin of safety, high yield, and upside potential despite sector uncertainties," sums up Lin. (To watch Lin's track record, click here)

Wall Street, for now, remains more cautious. With 1 Buy, 2 Holds, and 1 Sell, IIPR stock carries a Hold (i.e., Neutral) consensus rating. Still, the Street's average price target of $61.33 suggests ~28% upside over the next 12 months. Based on the current dividend yield and the expected price appreciation, the stock has a 43.5% potential total return profile. (See IIPR stock forecast)