My Top 10 Dividend Payers For August

Aug. 07, 2022 7:30 AM ETCTRA, EOG, EPD, IIPR, KO, LEG, LYB, MED, MMM, MMP, MPW, PG, TXN, WSO13 Comments
Garrett Duyck profile picture
Garrett Duyck
2.67K Followers

Summary

  • Dividends are an important source of income for investors of all types but especially those that rely on their investments in retirement.
  • My ideal dividend payer accomplishes four goals: maximize total return, deliver a meaningful yield, experience strong growth, and provide a margin of safety.
  • This month we take a closer look at Innovative Industrial Properties, Inc.

Excited couple getting good news in the mail

Hispanolistic/E+ via Getty Images

There's something rewarding about dividends. Receiving that dividend payment in the mail or in your brokerage account reinforces the intention behind investing by manifesting the outcome. It says, "Your capital has been hard at work, here's your reward."

Today, I want to share my top 10 dividend payers for August, and take a closer look at a new top pick: Innovative Industrial Properties, Inc. (IIPR).

For a recap on dividend investing basics read my previous article on dividend payers.

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Screenshot of Dividend Recap (Seeking Alpha, Garrett Duyck)

Top 10 Dividend Payers

This exercise is to identify potentially good dividend payer equities that are worthy of further examination. This exercise does not analyze overall investment suitability and is not an assessment of risk.

These are my four dividend payer goals:

  1. Maximize total return
  2. Deliver a meaningful yield
  3. Experience strong dividend growth
  4. Provide a margin of safety against dividend cuts

The exercise begins with a stock screen that eliminates attributes which compromise my goals. I use the Seeking Alpha Stock Screener to sort equities based on the following qualifications. I implement substitutions to the data for REITs and MLPs.

Metric Screen
Dividend Yield FWD >2%
Payout Ratio <150%
5Y Dividend Growth >2%
Years of Dividend Growth >5
EPS FWD >-3.0%
Cash From Operations >-200M
Return on Assets >3%
Debt to Equity <500%
Debt to FCF >-10%

Finally, the candidates are ranked using an equation that assigns a weighted score according to the order of prioritization in the table below. The maximum ranking score is 10. Scores are relative to each other.

Metric Reinvestment Strategy Priority Retirement Strategy Priority
Dividend Yield FWD Medium High
Payout Ratio High Low
5Y Dividend Growth Low Medium
Years of Growth Medium Medium
Revenue Growth FWD Medium Medium
EPS Growth FWD High Medium
Return on Assets Medium

Medium

Top 10 Dividend Payers For Dividend Reinvestment

Ticker Name Dividend Yield FWD Score
1 CTRA Coterra Energy Inc. 2.01% 5.0
2 IIPR Innovative Industrial Properties, Inc. 7.41% 4.7
3 MED Medifast, Inc. 3.85% 4.6
4 MMM 3M Company 4.25% 4.5
5 PG The Procter & Gamble Company 2.47% 4.3
6 EOG EOG Resources, Inc. 2.79% 4.3
7 TXN Texas Instruments Incorporated 2.62% 3.9
8 WSO Watsco, Inc. 3.34% 3.9
9 LEG Leggett & Platt, Incorporated 4.39% 3.9
10 KO The Coca-Cola Company 2.75% 3.9

Top 10 Dividend Payers For Retirees

Ticker Name Dividend Yield FWD Score
1 IIPR Innovative Industrial Properties, Inc. 7.41% 5.5
2 MED Medifast, Inc. 3.85% 4.4
3 CTRA Coterra Energy Inc. 2.01% 4.3
4 MMP Magellan Midstream Partners, L.P. 8.10% 4.1
5 EPD Enterprise Products Partners L.P. 7.19% 4.0
6 EOG EOG Resources, Inc. 2.79% 3.9
7 MMM 3M Company 4.25% 3.8
8 LYB LyondellBasell Industries N.V. 5.37% 3.5
9 MPW Medical Properties Trust, Inc. 6.86% 3.5
10 TXN Texas Instruments Incorporated 2.62% 3.4

This month's lists change notably by the addition of Innovative Industrial Properties, Inc. The company receives solid scores on both lists and offers a very high yield at 7.41% FWD.

IIPR has not performed well in the last year with the shares losing over 50% since November 2021. This is one of the main reasons that the stock has jumped into the top ten as the dividend yield has risen to the highest level on record.

Chart
Data by YCharts
Chart
Data by YCharts

The dividend receives superb dividend grades by Seeking Alpha including an "A" for safety. Each metric under dividend safety receives good marks with the exception of the two that might just matter most: FFO and AFFO payout ratio. A forward FFO payout ratio of 93% and forward AFFO payout ratio of 86% do not leave much room for error.

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Seeking Alpha

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Seeking Alpha

The good news is that the FFO payout ratio is actually the lowest in the stock's history, go figure. So what really matters is if the company can maintain its cash flow growth. At a price to FFO ratio of 13.02x IIPR is trading at the lowest valuations on record and at cheap valuations if the company meets estimates. In that case, at a 15x P/FFO the stock would return 27% CAGR total returns by December 2024.

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FAST Graphs

In addition to attractive P/FFO and price to free cash flow multiples the company is sporting a 0.762 PEG ratio. Clearly the market does not believe the analysts.

Chart
Data by YCharts

Below is the long term chart of IIPR. Price has reached support at the lower bound of the logarithmic channel at a time when weekly 14 RSI is deeply oversold at 25 and share price is over 40% below the 200 day moving average. These technical indicators suggest a great long term entry point.

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Charts by TradingView (adapted by Author)

The issue is that IIPR is having issues with tenants becoming delinquent on rent payments. Their tenant, King's Garden, Inc. has defaulted on rent payments and other obligations. This is partly due to tight margins in the cannabis industry.

In addition, IIPR has been successful because it has earned a premium for its niche of providing facilities to cannabis growers that have limited access to capital due to regulations. That niche could be lost in an instance if the right law is passed.

The company reported Q2 earnings on August 3rd. FFO per share missed by $0.01 which is a miss of 0.5%, not bad. Of larger importance is the status on troubled tenants. Here is what Executive Chairman Alan Gold had to say during the earnings teleconference:

Later in July, we filed a suit with the state court asking for immediate access to our properties among other demands. Today, Kings Garden remains in default and on August 2nd, we amended our suit making further claims regarding construction at the properties, among other things. Okay that is what happened. And unfortunately, we will not be able to answer any questions regarding the legal proceedings. I ask for your understanding. And please note, we are doing all that we can to pursue our interest.

*wincing*

As a bit of positive news, during the Q&A section of the call Alan suggested that there was interest from potential tenants to lease the troubled properties. He also stated that the only tenants behind on rent to date were Kings Garden and Vertical.

Summary

By the numbers IIPR makes for a great dividend payer. It seems that the issues with delinquent tenants are temporary and the impact to profits manageable, seeing as Kings Garden accounts for only 6.6% of company invested capital. On the other hand, other operators may find themselves in similar financial positions if economic conditions and inflation continue to deteriorate. It also concerns me that the entire business model is vulnerable to shifts in political demeanor. For now this is one I'm keeping an eye on.

This article was written by

Garrett Duyck profile picture
2.67K Followers
Generalist investor and Seeking Alpha Contributor. Articles are a deep dive into his research and portfolio decisions. The author's approach focuses on macroeconomics with the goal of achieving highest risk-adjusted return by emphasizing strong cash flow, dividends, margin of safety, and options strategies. ~A picture is worth a thousand words but a chart is worth a thousand pictures~

Disclosure: I/we have a beneficial long position in the shares of EPD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The content in this article is for informational, educational, and entertainment purposes only. This content is not investment advice and individuals should conduct their own due diligence before investing. The author is not an investment advisor and is not suggesting any investment recommendations. This article reflects the opinions of the author based on the author’s best judgement at the time of writing and are subject to change without notice. The author is not responsible for errors, omissions, or inaccurate information contained in the article. Readers are responsible for their own investment decisions and should consult with their financial advisor before making any investment decisions.

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