REFI Stock: Market-Crushing U.S. Pot Stock Pays Reliable 11.8%-Yield Dividends
June 28, 2023
Chicago Atlantic Real Estate Finance Stock Is a REIT Play in a Niche Category
Leaving the legal status of marijuana up to individual states is an easy thing for the federal government to do. While it sounds like a good idea—no overlord imposing its so-called morality on the entire country—it means cannabis is still illegal at the federal level.
This also means it’s virtually impossible for marijuana companies to access services from the traditional banking industry.
One company that plays to the current weakness of the cannabis industry is Chicago Atlantic Real Estate Finance Inc (NASDAQ:REFI).
The firm is a commercial mortgage real estate investment trust (REIT) that originates senior-secured loans, mostly to state-licensed marijuana operators. (Source: “Chicago Atlantic Real Estate Finance Announces First Quarter 2023 Financial Results,” Chicago Atlantic Real Estate Finance Inc, May 9, 2023.)
The company’s loans are secured by real estate, equipment, receivables, licenses, and other assets.
As of March 31, Chicago Atlantic Real Estate Finance Inc had total loan commitments of approximately $328.1 million ($313.9 million funded and $14.2 million unfunded) across 24 portfolio companies.
Recent Dividend History
Since Chicago Atlantic Real Estate Finance elected to be classified as a REIT, it’s not subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its shareholders.
The company only went public on December 8, 2021, so it doesn’t exactly have a long history of paying dividends. It has raised its regular dividend once, in June 2022.
Last December, the REIT also announced a special dividend of $0.29 per share. That’s because, even with a quarterly dividend of $0.47 per share, REFI stock’s payout didn’t meet the threshold to maintain its status as a REIT. (Source: “Chicago Atlantic Real Estate Finance Declares Common Stock Dividend of $0.47 for the Fourth Quarter of 2022,” Chicago Atlantic Real Estate Finance Inc, December 15, 2022.)
That lifted Chicago Atlantic Real Estate Finance stock’s annual payout to $2.10 per share, for a then-yield of 13.7%.
That special dividend wasn’t a total surprise. During the third quarter of 2022, management said it might need to declare a special dividend in December to meet its 2022 taxable income requirements.
John Mazarakis, Chicago Atlantic Real Estate Finance Inc’s executive chairman, noted, “The combined $1.81 in regular quarterly dividends declared during 2022 and the additional special dividend of $0.29 reflect our success in redeploying capital from refinancings and early payoffs into higher yielding loans on an accretive basis as well as the depth and quality of our loan pipeline.” (Source: Ibid.)
More recently, on June 16 of this year, the company’s board declared a regular cash dividend of $0.47 per share, for a current inflation-crushing yield of 11.8%. (Source: “Chicago Atlantic Real Estate Finance Declares Common Stock Dividend of $0.47 for the Second Quarter of 2023,” Chicago Atlantic Real Estate Finance Inc, June 16, 2023.)
Q1 Net Income Up 46% Quarter-Over-Quarter
Maybe 2023 will end up being a challenging year for Chicago Atlantic Real Estate Finance, but so far, it’s been turning out better than expected.
For the first quarter ended March 31, the company announced that its net interest income increased by one percent sequentially to $14.9 million. Its net income increased in the first quarter by 46.3% sequentially to $10.7 million, or $0.60 per share. Its distributable earnings increased by 10.6% sequentially to $11.1 million, or $0.62 per share. (Source: Chicago Atlantic Real Estate Finance Inc, May 9, 2023, op. cit.)
During the first quarter, Chicago Atlantic Real Estate Finance Inc had total gross originations of $34.1 million, of which $33.3 million was funded to a new borrower and $800,000 was funded to an existing borrower.
On February 15, the company completed a direct offering of 395,779 shares of common stock to institutional investors at a price of $15.16 per share, raising net proceeds of approximately $6.0 million. On February 27, Chicago Atlantic Real Estate Finance Inc extended the maturity date of its revolving credit facility to December 2024 and maintained its one-year extension option (subject to customary conditions).
The company currently has total liquidity of approximately $52.6 million, comprising $3.1 million in cash and $49.5 million of availability under its credit facility.
Mazarakis noted, “The better-than-anticipated results reflect the benefit of four principal paydowns during the quarter and the timing of our redeployment of the proceeds.” (Source: Chicago Atlantic Real Estate Finance Inc, May 9, 2023, op. cit.)
He added, “With our fortress balance sheet, we have purposefully reined in our originations to continue to focus on higher yielding investments and funding vertically integrated operators with the strongest credit profile.”
Management Affirmed 2023 Guidance
Chicago Atlantic Real Estate Finance Inc didn’t get into too many details regarding its 2023 guidance, but it provided enough to keep dividend hogs happy—especially those who appreciate special dividends.
“We are entering what we believe will be a period of favorable demand for capital from a proven lending platform such as ours,” said Mazarakis. (Source: Chicago Atlantic Real Estate Finance Inc, May 9, 2023, op. cit.)
The company expects to maintain a dividend payout ratio of approximately 90% to 100% on a full-year basis. Management expects REFI stock’s regular quarterly common dividend to be a minimum of $0.47 per diluted share.
If Chicago Atlantic Real Estate Finance Inc’s net income requires it to pay additional dividends to meet its 2023 taxable income distribution requirements, the company expects to pay special dividends in the fourth quarter.
Chicago Atlantic Real Estate Finance Stock Up 15% Year-Over-Year
It’s one thing to have an inflation-crushing, ultra-high-yield dividend; it’s another thing to have a high yield when the stock’s price is soaring. And there aren’t a lot of cannabis stocks that can lay claim to either.
As of this writing, REFI stock is up by:
- 12% over the last month
- 24% over the last three months
- Five percent year-to-date
- 15% year-over-year
Chart courtesy of StockCharts.com
The Lowdown on Chicago Atlantic Real Estate Finance Inc
Chicago Atlantic Real Estate Finance stock is an excellent REIT stock in the U.S. marijuana sector.
Because cannabis is still illegal at the federal level, the company’s direct lending experience is increasingly a competitive advantage in a highly fragmented market.
The outlook for this cash cow is excellent. By 2030, U.S. sales of marijuana are expected to rival those of spirits and wine. Furthermore, the demand for financing in the cannabis industry is expected to climb as a result of changes to state and federal legislation.
That bodes well for Chicago Atlantic Real Estate Finance Inc’s business, share price, and reliable, ultra-high-yield dividends. It also bodes well for the likelihood of the REIT paying more special dividends.
