Published October 27th, 2020
This is a guest contribution from Harvi Sadhra with Hashtag Investing
When investors think about cannabis stocks, dividends are the last things that come to mind. Most pot stocks are unprofitable and grappling with multiple structural issues. Marijuana heavyweights such as Aurora Cannabis and Canopy Growth are posting multi-million-dollar EBITDA losses and are years away from profitability.
However, there are a few ancillary marijuana companies and firms with sizable investments in pot stocks that you can bet on for a regular stream of dividend income. Here we look at five such stocks that pay a dividend to investors.
A Marijuana Real Estate Player
The first company on the list is medical marijuana based real estate investment trust Innovative Industrial Properties (IIPR). This company focuses on the acquisition, ownership and management of specialized properties that is leased back to regulated medical-use cannabis companies.
IIPR pays a dividend of US$4.68 per share indicating a forward yield of 3.8% given its stock price of US$124. IIPR stock went public in December 2016 and has since returned 630% since its IPO, making it one the top performing stocks in the cannabis space.
Several states in the U.S. have legalized medical cannabis and a few more are expected to do so by the end of 2020, increasing the addressable market for the REIT. Further, the average lease term of the triple net-lease contracts are over 16 years allowing IIPR to generate a steady stream of predictable cash flows across business cycles.
At the start of October 2020, IIPR owned 63 assets in 16 U.S. states and claimed 99.3% of its square feet area is already leased. The company is focused on driving top-line growth via acquisitions and this strategy allowed IIPR to increase quarterly dividends by 10% to $1.17 a share recently.
A Tobacco Giant
The second company is a leading tobacco heavyweight Altria (MO), a stock that has a market cap of US$72.6 billion. Altria pays a dividend per share of US$3.44 per year, indicating a forward yield of a tasty 8.8%.
Altria owns 45% of cannabis firm Cronos Group (CRON) and invested $1.8 billion in 2019 for the substantial stake. The company has increased dividends for 51 consecutive years and there is little chance that payouts will reduce in the upcoming quarters. This makes the Altria a member of the exclusive Dividend Kings list; securities with 50+ years of consecutive dividend increases.
Altria Group through its subsidiaries, manufactures and sells cigarettes, smokeless products, and wine in the United States. It offers cigarettes primarily under the Marlboro brand, cigars under the Black & Mild brand, and moist smokeless tobacco products under the Copenhagen, Skoal, Red Seal, and Husky brands.
Altria sells its tobacco products primarily to wholesalers, including distributors, and large retail organizations, such as chain stores.
However, since last year there have been a few headwinds impacting Altria. There is a lot of uncertainty with regards to vapes due to health concerns over these products. The company is under investigation by the United States International Trade Commission for infringement of patents with respect to a heated tobacco product technology. Further, Cronos is also struggling with negative profit margins and reported an operating loss of $80 million in the first half of 2020.
A Garden Products Company
The Scotts Miracle-Gro (SMG) manufactures, markets, and sells consumer lawn and garden products in the United States and internationally. The company operates through three segments: U.S. Consumer, Hawthorne, and Other.
It offers lawn care products, such as lawn fertilizers, grass seed products, spreaders, other durable products, and outdoor cleaners, as well as lawn-related weed, pest, and disease control products.
The company also provides gardening and landscape products, including water-soluble and continuous-release plant foods, potting mixes and garden soils, mulch and decorative ground cover products, plant-related pest and disease control products, organic garden products, and live goods and seeding solutions.
In addition, it offers hydroponic products that help users grow plants, flowers, and vegetables in an indoor or urban environment, and insect control products, rodent control products, and weed control products for home areas.
SMG’s Hawthorne business is focused on the cannabis space and this segment grew sales by 72% to $300 million in Q2, compared to a 28% increase in total revenue. In 2020, the stock has risen close to 40% and increased dividends by 7% taking its forward yield to 1.7%.
A Beverage Leader
Anheuser-Busch InBev (BUD) is a brewing company that engages in the production, distribution, and sale of beer, alcoholic beverages, and soft drinks worldwide. It offers a portfolio of approximately 500 beer brands, which primarily include Budweiser, Corona, and Hoegaarden.
The stock has a market cap of $113 billion and trading at a price of $57.6 which means its forward yield stands at 2.6%, given dividends per share of $1.45. BUD has partnered with Tilray (TLRY) to enter the cannabis-infused beverage segment.
AB InBev has lost 40% in market value in the last year due to tepid beer sales, the ongoing pandemic and business shutdowns, and rising commodity costs. In the first half of 2020, sales fell 12% while adjusted EBITDA was down close to 25%.
In 2020, analysts expect sales to fall by 12.4% while earnings decline is forecast at 51%.
The final company on the list is Constellation Brands (STZ). It has a market cap of $35 billion and its annual dividends per share of $3 indicates a forward yield of 1.7%. The company produces, imports, and markets beer, wine, and spirits in the United States, Canada, Mexico, New Zealand, and Italy.
Constellation holds a 38.6% stake in Canopy Growth. It first invested $245 million in Canopy in 2017 for 9.9% stake and pumped in another $5 billion in 2018. Constellation exercised warrants in May this year which were obtained during its first investment taking total ownership to 38.6%.
In case it exercises subsequent convertible notes and warrants. Constellation Brands’ ownership might increase to over 55% in Canopy Growth. It seems Constellation is all-in as it also pointed its former CFO David Klein as Canopy’s CEO in early 2020.