Real estate investment trusts (REITs) are a very interesting investment vehicle. Basically, REITs are real estate firms which purchase, own and operate various properties. They produce income in the form of rent and also come in several different flavors. Broadly, REITs can be divided into one of two categories — residential or commercial. But there’s another category I’d like to focus on for this article: penny stock REITs.
Typically, the average REIT investor is looking for dividend payouts as a form of income. Moreover, a typical investor doesn’t expect price appreciation from REIT stocks. However, penny stock investors do. That’s what makes the niche of penny stock REITs so interesting — they’re a “best of both worlds” play.
The seven penny stock REITs I’ve listed below all trade for under $5 and have the ability to move up quickly. At the same time, though, they all bear dividends. That makes any fluctuations much easier to justify.
- MFA Financial (NYSE:MFA)
- Invesco Mortgage Capital (NYSE:IVR)
- Lument Finance Trust (NYSE:LFT)
- Western Asset Mortgage Capital (NYSE:WMC)
- New York Mortgage Trust (NASDAQ:NYMT)
- AG Mortgage Investment Trust (NYSE:MITT)
- Presidio Property Trust (NASDAQ:SQFT)
Penny Stock REITs to Buy: MFA Financial (MFA)
First up on this list of penny stock REITs, MFA Financial invests in mortgage-backed securities and residential whole loans. What’s more, although most REITs don’t generally appreciate in price quickly, MFA has been doing exactly that. Year-to-date (YTD), MFA stock has steadily moved up some 18% from $3.76 to $4.60 today. Even the most ardent growth investors have to admit that kind of growth is attractive.
On top of this, MFA Financial also announced a 10 cent dividend payable on Jul. 30. That works out to an 8.7% yield on an annualized basis, based on the current price. Add that return to the price appreciation and you can see why MFA stock is interesting right now.
Plus, investors could possibly expect that dividend to move toward 20 cents if history holds any clues. The company had been paying a 20 cent quarterly dividend from 2013 up until the pandemic disrupted operations.
From a price appreciation perspective, there is also reason to be optimistic on the shares. Prior to the pandemic, MFA had been trading in the $7 to $8 range for several years. Now, it is steady and could continue to rise, retracing those losses from its current sub-$5 price.
Finally, I think there’s reason to like this REIT based on the credit profiles of its loan asset base as well. The weighted average credit score backing its assets is in the 725 range, meaning the likelihood of default is relatively low.
Invesco Mortgage Capital (IVR)
If Invesco Mortgage Capital shares ever increase to their pre-pandemic levels, current investors will be beaming from ear to ear. That’s because IVR stock essentially traded on a plateau of around $16 between late 2016 and the onset of the pandemic.
Right now, though, the price of this pick of the penny stock REITs sits in the $3 to $4 range. In fact, based on analyst expectations, it looks like IVR shares may sit where they stand for some time. However, it would also be fair to say that IVR has more potential upside than MFA stock does.
In any case, Invesco Mortgage Capital’s dividend should serve well to buffer the price volatility. Today, the dividend stands at 9 cents and yields 9.18% according to Seeking Alpha. Prior to the pandemic, income investors could have depended on IVR stock to pay in the range of 40 to 50 cents on a quarterly basis.
Penny Stock REITs to Buy: Lument Finance Trust (LFT)
Lument Finance Trust is the next pick of the penny stock REITs on this list, deriving its value from commercial real estate debt primarily in the middle-market family sector. Unlike other names on this list, LFT stock’s dividend also remained unaffected by the pandemic. In fact, the company changed its name in late 2020, announced a dividend increase and has since continued its strong trajectory.
Today, Lument Finance Trust is already trading above its pre-pandemic price levels. That is partially due to the fact that its dividends are higher than they’ve been since late 2015. Additionally, it seems that the rebranding combined with other factors is working in the company’s favor. Investors are happy.
One of the primary concerns related to investing in REITs currently is that renters may not be able to pay. However, 100% of its commercial real estate portfolio was current as of Mar. 31, its latest earnings filing date (Page 4). Further, Lument didn’t grant “a single forbearance nor […] experienced a single loan default” in what it refers to as the “COVID era.”
Based on analyst projections, LFT stock should plateau around $4.50, which is where it currently stands. Yet, based on the trajectory of its price chart YTD, there is reason to believe it could exceed those levels.
Western Asset Mortgage Capital (WMC)
Holders of WMC stock could count on a very stable dividend from the period between June 2016 up until the pandemic. In fact, the dividend for this pick of the penny stock REITs was as stable as they come. For each and every quarter between those two dates, investors received 31 cents. That means shareholders received $1.24 per share each year. During that time, WMC stock traded around the $10 level — an income investor’s dream by and large.
Of course, the pandemic shook up this scenario and Western Asset Mortgage Capital skipped its dividend throughout the first half of 2020. However, it began paying the dividend again in October 2020 and is now back on a quarterly payout schedule.
For 2021, WMC stock is now trending upward and consolidating at higher and higher levels as the recovery continues. Formerly $10 per share, prices are now closer to $3.20 while the dividend is 6 cents per quarter. That may not sound so attractive. However, an investment now is a bet that both the stock price and the dividend payouts appreciate with some regularity and approach their former levels.
Currently, Wall Street essentially has no strong feeling about where WMC stock is heading. According to the Wall Street Journal, two analysts currently shade it toward the underweight category. However, WMC has beaten the earnings consensus in each of its past four quarters. That indicates that analysts continue to underestimate the company and its ability to rise.
Penny Stock REITs to Buy: New York Mortgage Trust (NYMT)
Next up on this list of penny stock REITs is New York Mortgage Trust, a REIT that’s focused on mortgage-related and residential housing-related assets. Moreover, like the vast majority of REITs, NYMT’s shareholder focus is on stable distributions over the longer term.
Most of the other stocks on this list are drawing trepidation from Wall Street right now. Basically, analysts are somewhat fearful of making predictions about the direction of real estate. Therefore, many of these REITs currently have “hold” ratings. But the situation is somewhat better in the case of NYMT stock. Today, it has a consensus overweight rating with a high price target of $6 from the 10 analysts covering it. If nothing else, that should comfort investors a bit.
On top of this, NYMT stock has been appreciating in price steadily throughout 2021, marching upward from about $3.60 to around $4.40 today. That 23% appreciation is not common in the REIT world. Although it’s clearly a consequence of the times, it’s also great for investors.
New York Mortgage Trust’s latest dividend was 10 cents and its dividend yield is currently 9.03% according to Seeking Alpha. In the past, the dividend has been closer to between 20 and 30 cents. Investors may hope for a return to those levels in 2022.
AG Mortgage Investment Trust (MITT)
Like many of the other penny stock REITs on this list, AG Mortgage Investment Trust could be trusted for a couple of things pre-pandemic; a steady dividend and steady share price. Shares of MITT stock were very predictable between mid-2016 and early 2020, mostly staying between $15 and $17. The same goes for MITT stock’s dividends, which ranged between 45 and 50 cents without fail.
When the pandemic hit, however, AG Mortgage suspended its dividend and the share price drastically decreased. MITT reinstated its dividend at the very end of 2020, though, paying 6 cents. That is a far cry from the dividend that investors had grown accustomed to.
Today, though, the most recent dividend was a somewhat encouraging 7 cents. Altogether, MITT has recovered a bit in 2021. Now it intends to “streamline […] [its] business model to focus on residential whole loan investments, ultimately positioning the company as a pure play residential credit company.” Investors searching for this particular niche of the REIT market likely won’t find a cheaper dividend-bearing stock.
Penny Stock REITs to Buy: Presidio Property Trust (SQFT)
Last up on this list of penny stock REITs, Presidio Property Trust is unique in that it doesn’t have a long track record as a publicly traded entity. In fact, SQFT stock began trading in October 2020 and is focused on commercial operations in office and industrial properties. In that short time, the company has paid three dividends, all of which have been sequentially bigger. Those dividends were 10 cents, 10.1 cents and 10.2 cents respectively.
Focused in the midwestern and western United States, Presidio’s current portfolio of commercial properties includes 12 commercial sites across Colorado, California and North Dakota. Basically, this company employs a logical strategy by choosing specific target sites in areas with low unemployment and lower cost of living. If trends hold, these factors should keep its properties in demand.
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On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.