The 2 Best Dividend Stocks in Marijuana

By Keith Speights Markets Fool.com

Marijuana stocks that pay dividends? That might seem like an oxymoron. For one thing, profitability is usually a prerequisite for paying out dividends, and there aren't too many profitable marijuana stocks out there.

Continue Reading Below

If you're really wanting to find marijuanastocks that pay a dividend, though, there are two that stand out -- AbbVie (NYSE: ABBV) and TheScotts Miracle-Gro Company (NYSE: SMG). Admittedly, there's a bit of a stretch required to truly call these marijuana stocks, but both do have solid marijuana connections. Here's why AbbVie and Scotts Miracle-Gro are the best (and perhaps only) dividend stocks in marijuana.

Image source: Getty Images.

An early marijuana drug and a sky-high dividend yield

AbbVie markets Marinol for managing the loss of appetite associated with AIDS treatment and fornausea and vomiting associated with cancer chemotherapy. Marinol holds the distinction as the first cannabinoid approved in the U.S., with the Food and Drug Administration (FDA) granting approval of the drug back in 1985.

Marinol's active ingredient isdronabinol, a synthetic delta-9-tetrahydrocannabinol (THC), which is the psychoactive component of marijuana. The drug was first made by Unimed. Solvay Pharmaceuticals acquired Unimed in 1999, and Abbott Laboratories purchased Solvay Pharmaceuticals in 2010. Three years later, Abbott spun off AbbVie as a separate entity, with the new company taking Marinol with it.

Continue Reading Below

Does Marinol generate a lot of money for AbbVie? Um, no. In fact, the company doesn't even mention the drug in its financial reports. Still, AbbVie continues to market Marinol, which qualifies it as a marijuana stock (at least in the broadest sense of the term). More importantly for our discussion, the company pays out a tremendous dividend.

AbbVie's dividend yield currently stands at 3.9%. AbbVie also ranks as one of the stocks with the fastest-growing dividends on the market. The company appears to be in a good position to keep the dividend checks flowing, with growing earnings and a strong cash flow.

The go-to source for marijuana growers

Scotts Miracle-Gro doesn't sell any products that contain marijuana. But the company is intertwined with the marijuana-growing industry. Scotts Miracle-Gro has become the go-to source for marijuana cultivators for supplies, includingfertilizers, lighting, and hydroponic products.

Over the past few years, Scotts Miracle-Gro has completed several acquisitions that bolstered its position as a primary supplier for marijuana growers. In 2015, the company acquired the assets ofGeneral Hydroponics and Vermicrop, both of which areleading producers of liquid plant food products and accessories for hydroponic gardening. Last year, Scotts bought Gravita, a Netherlands-basedmaker of indoor lighting used in the greenhouse and hydroponic markets. The company also purchasedAmerican Agritech, aproducer of plant nutrients, plant supplements, and growing systems used for hydroponic gardening.

Scotts Miracle-Gro doesn't provide details on how much of its revenue stems from sales to marijuana growers. However, it's clearly an important market to the company. CEO James Hagedorn has stated that the company intends to be a major supplier for both recreational and professional marijuana growers.

Dividend-seeking investors have something to like with Scotts Miracle-Gro. The dividend currently yields 2.26%. Scotts has increased its dividend payments for seven consecutive years. With a payout ratio of 58% and growing earnings, the company appears to have plenty of room for future dividend hikes.

More possibilities in the future?

Could there be more dividend stocks for investors to choose from down the road? It's possible. However, I wouldn't count on any surge in alternatives anytime soon.

As mentioned earlier, most marijuana stocks aren't profitable yet. Even some of the ones that are profitable right now aren't yet able to sustain those profits. Although expected growth in the marijuana industry could change that relatively soon, there's still no guarantee that companies will choose to return profits to investors in the form of dividends.

My hunch is that it will be years before there are plenty of marijuana stocks offering dividends. For now, AbbVie and Scotts Miracle-Gro appear to be the only choices. At least they're good ones.

10 stocks we like better than AbbVie
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and AbbVie wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of May 1, 2017

Keith Speights owns shares of AbbVie. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.