Dividend investors often gravitate towards certain sectors that are considered the safest in the market, including well-known sectors such as industrials or consumer staples. But in terms of growth, these sectors can often struggle, meaning investors may have to forfeit growth in exchange for stability. While that certainly has appeal for a lot of investors, income investors looking for growth may need to look to alternative sectors.
One such sector is the cannabis industry. While cannabis is still in the early stages, there are some companies with exposure to cannabis that offer investors exposure to the high growth potential of cannabis, but also pay dividends to shareholders. There is even a cannabis Real Estate Investment Trust, typically a popular asset class among income investors.
Investors often have to make the choice between growth or dividends, but with cannabis-related stocks, sometimes they come from the same place. In this article, we’ll highlight three stocks that we see as favorable stocks to gain exposure to the burgeoning cannabis industry, while also receiving dividends.
Here are 3 cannabis stocks to buy for growth and high dividends:
Innovative Industrial Properties (NYSE:IIPR)
The Scotts Miracle-Gro Company (NYSE:SMG)
Constellation Brands (NYSE:STZ)
The three stocks highlighted here have very different ways of benefiting from cannabis utilization, and all three offer different growth paths and levels of dividend safety and yield. Still, for investors looking for growth and dividends, cannabis has become an increasingly accepted way to achieve both.
Cannabis Stocks to Buy: Innovative Industrial Properties (IIPR)
Our first stock is an REIT that’s nearly a pure play on the industry, specializing in properties used to cultivate and sell cannabis products. IIPR is the only cannabis-related REIT that has been approved for trading on the major U.S. stock exchanges, so investor capital has flocked to the stock since it became publicly-traded.
IIPR owns 69 properties in 17 U.S. states, and those numbers are growing rapidly. The trust is widely regarded as the fastest-growing REIT in the market today, but that hasn’t stopped it from being a serious income stock very early on in its life.
The trust’s most recent earnings report showed extremely strong year-over-year growth, with adjusted funds-from-operations (FFO) of $37 million in Q4, more than double the year-ago period. The trust acquired four new properties during the quarter and expanded an existing property, totaling 848 thousand rentable square feet. The trust also collected 100% of its contracted rent during the quarter, in contrast to many REITs with pandemic-stricken customers that are struggling with sluggish demand.
We currently project 25% FFO-per-share annual growth for the next five years as IIPR continues to raise capital and expand aggressively, which is helping it to grow its FFO on a dollar basis. The trust is issuing common shares at an aggressive rate as well, which will cause FFO on a per-share basis to rise much less quickly than on a dollar basis. Still, we see close to $20 in FFO-per-share in 2026, after accounting for a rapid rise in the share count.
IIPR has raised its dividend payout very quickly since becoming publicly-traded, and we project it will pay out 85% of its FFO this year in dividends. That gives the stock a nice 3% current yield, with room for future increases as its FFO is likely to continue growing at a high rate.
The Scotts Miracle-Gro Company (SMG)
Source: Casimiro PT / Shutterstock.com
Our next stock is one that many investors may find surprising in its access to the cannabis sector, Scotts Miracle-Gro. Scotts is one of the world’s largest lawn and garden companies, selling everything from fertilizer and grass seed to outdoor cleaners, weed killers, disease control products and more.
Scotts’ products began to be used in the production of cannabis in earnest a few quarters ago, and shares have skyrocketed on the growth potential. Specifically, its subsidiary The Hawthorne Gardening Company provides nutrients, lighting and other materials used in the indoor and hydroponic growing segment.
The company’s first quarter earnings report showed its first-ever profit during the what is the slowest time of year for Scott’s, highlighting the strength the company has seen in recent quarters. Sales more than doubled in Q1 from the year-ago period, hitting a record of $749 million.
Demand was strong in all categories of indoor growing products, as consumers stayed at home and tended gardens and indoor plants with Scotts products. Growth was pronounced in the Hawthorne segment, which grew sales by 66% last quarter.
Earnings-per-share came to 39 cents, which was up sharply from a loss of $1.12 per share in the year-ago period. The company is struggling to replicate recent growth, but there is still plenty of room for continued expansion. Management expects Hawthorne to grow full-year sales by 30% to 40%.
Scotts scores very high for dividend safety, with our projection of the stock’s payout ratio at just 30% for this year. That leaves Scotts ample room to raise the payout in the coming years and weather any potential earnings downturn. The stock has a 1% dividend yield, with a high dividend growth rate.
Constellation Brands (STZ)
Constellation Brands is perhaps another surprising cannabis stock, as it is mostly known for its dominating beer and spirit brands. However, Constellation owns a large stake in Canopy Growth (NASDAQ:CGC), which is worth about 39% of the company, or $3.8 billion at CGC stock’s current market capitalization.
Constellation’s fourth quarter earnings results showed a modest 2.6% increase in sales to $1.95 billion, as soaring beer sales offset declining wine and spirits sales, which was attributable to divestitures. For the year, the company saw revenue rise just over 3% to $8.6 billion, and earnings-per-share rise from $9.12 to $9.97 on an adjusted basis. Excluding the investment in Canopy, earnings-per-share would have been $10.44, as Canopy has thus far been a money loser for Constellation.
We expect 5% annualized growth from Constellation in the coming years, fueled by ever-stronger demand from its core beer portfolio. In addition, we see the rapid growth of Canopy as having the potential to boost its growth rate, although we remind investors that Constellation owns a very large portion of a highly speculative cannabis stock with an extremely high valuation.
Like Scotts, Constellation scores high for dividend safety, with its payout at 30% of earnings for the year. We see no dividend safety issues upcoming for Constellation, and indeed expect the payout to be raised for many years to come.
On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.
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