IIPR preferred stock is attractive due to high yield and strong coverage; IIPR common stock is risky due to insufficient cash flow for dividends.

The first stock to enter this month's list is " Innovative Industrial Properties". However, it wasn't the ordinary stock that made the list.

It is indeed an excellent stock. This is a stock I've been watching closely. One of the additions we made this year was the preferred stock of Innovative Industrial Properties when we started to see it drop to a price range of $22 to $23.

Within that range, we can see that the initial return for this premium stock was over 10%. We added it when its yield was around 10.02%. Yes, we have established a 10% return and have seen a very strong rise in the share price since then .

So, let's take a step back for a moment and talk about what this Real Estate Investment Trust (REIT) is. Why buy preferred stocks? And why does it still represent a potential opportunity ?

Well, this is a specialized real estate investment fund that owns facilities for agriculture and processing.

What is interesting is that ordinary stocks actually offer a very high return. This is the ordinary arrow we are looking at now. You can see that the future yield is approximately 13.59%.

However, here's a potential problem. We can see the valuation; yes, it looks interesting , as the adjusted AFFO price-to-money multiple is only 7.8. However, we can also see that adjusted cash flow from per-share operations does not currently cover cash distributions.

It was not covering the distributions in 2025. It is not expected to cover them in 2026. It starts to approach coverage in 2027. So, suddenly this has undoubtedly become a warning sign.

We have seen a decrease in adjusted cash flow from the operations produced by this company, and it does not currently cover dividend payouts.

However, this is not the case for the preferred stock. Preferred shares currently yield a return of approximately 9%. Now, there are also some advantages to preferred stocks. Typically, you certainly won't see a lot of volatility, but keep in mind that there aren't many opportunities for upward movement either.

Preferred shares also receive priority in dividend distributions and in the event of liquidation.

But here's what makes premium stock far more attractive than regular stock right now. It is when we look at these two opportunities from the perspective of the risk- to-reward ratio.

IIPR ended the last quarter with a net debt to adjusted EBITDA ratio of just 1.7 times, a very reasonable leverage ratio for a real estate fund.

However, we can also see that the premium dividends are covered by approximately 16.6 times adjusted funds from annual operations. So, this is a radical difference from ordinary stock, which really struggles to cover its costs through adjusted cash flow from operations.

The truth is that preferred dividends are very well covered , and this coverage is much stronger than their counterparts despite having less leverage.

There are clearly some tenant-related problems in this sector, but these are more than compensated for by this type of dividend coverage . Now, keep in mind that this favorite stock is callable at $25.

This is the nature of many preferred shares, but we must remember that if management is preparing to redeem the security in the near future, it would be unusual for the company to simultaneously maintain an active mechanism that allows it to issue more shares of the same preferred type.

So, from my personal point of view, this makes a payback seem much less likely, which is good news for those of us looking to collect a high return.

Of course, the trade-off is that each additional preferred share increases the IIPR's fixed dividend obligations. So , keep that in mind.

So, this is a 10% yield stock and it has been a big winner in Dividendology's high-yield portfolio.