There are thousands of penny stocks. However, when it comes to penny stock REITs (real estate investment trusts), there are only a handful. According to Finviz, there are only 39 stocks trading on major U.S. exchanges that are classified as real estate stocks.
Out of these 39, less than half of them are qualified as REITs. Filter out the REIT penny stocks that currently do not pay a dividend, and the list gets even smaller. Only twelve of them currently pay a dividend.
Filtering this list further, to only penny REIT stocks that pay what can be considered “high” (5% or greater), and there are only seven left standing. The question now is whether the seven stocks fitting this criterion are worthy of an investment, whether for yield or for capital appreciation potential.
While offering above-average yields, these seven penny stock REITs come with a high degree of risk. Let’s dive in, and see whether the potential rewards outweigh the risks.
|Broadmark Realty Capital
|Diversified Healthcare Trust
|Lument Finance Trust
|New York Mortgage Trust
|Presidio Property Trust
Broadmark Realty Capital (BRMK)
Broadmark Realty Capital (NYSE:BRMK) is a commercial mortgage REIT, focused on making short-term construction loans, better known as “hard money” loans. These types of loans are risky, but this risk is accounted for, as the hard money lender charges a high rate of interest.
During the pandemic housing boom, BRMK stock held steady and rewarded investors with 7 cents per share in monthly dividends. However, with the housing boom heading towards a bust, due to the current economic challenges, this REIT slashed its dividend by 50%, in order to conserve cash.
As a result, BRMK fell fully into penny stock territory. Yet while Broadmark is in a tough spot right now, this risky REIT may still be worthy of a small, speculative position. Still sporting a high yield (around 10%) despite the dividend cut, BRMK also trades at around a 42.3% discount to its tangible book value.
Corenergy Infrastructure Trust (CORR)
Corenergy Infrastructure Trust (NYSE:CORR) specializes in owning critical energy assets like pipelines and storage terminals. Yet while this REIT knows what its niche is, this has not been a path to riches.
Far from it, as CORR stock has fallen by nearly 95% over the past five years. Granted, the root cause of this is likely something that will not repeat itself. At the onset of the Covid-19 pandemic, two of Corenergy’s biggest tenants stopped paying rent. As a result, CORR sold one of its main assets at a fire sale price. This REIT also significantly reduced its quarterly dividend, from 75 cents to 5 cents per share.
However, CORR’s problems may not be behind it. As a Seeking Alpha Commentator argued last September, new challenges may lead to another dividend cut. With this, avoid bottom-fishing in this REIT, despite its double-digit forward dividend yield (10.1%).
Diversified Healthcare Trust (DHC)
Diversified Healthcare Trust (NASDAQ:DHC) owns a variety of healthcare-related real estate assets. Managed by RMR Group (NASDAQ:RMR), DHC’s portfolio is around 50% medical office buildings, with the rest split between senior living communities, life science properties, and wellness centers.
Like the penny stock REITs mentioned above, Diversified Healthcare Trust has experienced a worsening of fundamentals, and has significantly reduced its dividend in recent years. Once paying out 38 cents per quarter in dividends, DHC’s current payout is now just a penny per quarter.
Although you can buy DHC stock today for only 75 cents per share, you may want to stick with other high-yield, low-priced REITs. As seen from DHC’s latest quarterly financials, this REIT is reporting little improvement in its operating performance. With questionable rebound potential, the stock’s current forward yield (5.25%) isn’t enough to make this struggling REIT a worthwhile opportunity.
Lument Finance Trust (LFT)
Lument Finance Trust (NYSE:LFT) is a commercial mortgage REIT, focused on middle-market multifamily loans. Between rising worries about a severe real estate market downturn, and LFT’s move in early 2022 to reduce its dividend from 9 cents to 6 cents per quarter, it’s no surprise LFT has performed poorly over the past year.
However, with its move down to around $2.08 per share, much like BRMK, risks and uncertainties may be adequately accounted for. Even when factoring in the dividend cut, LFT stock has a yield of 11.4%. LFT also trades at a more than 42% discount on its tangible book value.
Lument also has a 100% floating loan portfolio, a positive at a time when interest rates are rising. If you believe that real estate is in for only a soft landing, Lument Finance Trust stock may be worth considering as a buy at current prices.
New York Mortgage Trust (NYMT)
New York Mortgage Trust (NASDAQ:NYMT) holds a portfolio of single-family and multi-family residential mortgage assets. Considering the elevated worries about the housing market at present, it’s not unreasonable to assume that NYMT’s 13.7% forward yield may not be sustainable.
Although this mortgage REIT has already instituted a dividend cut in the recent past (during the pandemic), current earnings forecasts may suggest another cut lies ahead for NYMT stock. Sell-side consensus calls for earnings of just 11 cents and 16 cents, respectively, in 2023 and 2024.
The prospect of a severe real estate downturn may not be adequately baked into NYMT’s current valuation. Shares trade at around a 21% discount to tangible book, yet this discount could widen in the coming year if the situation with the housing market worsens before it improves. Considering its dividend trap risks, and potential for another pullback in price, steer clear of NYMT.
Sachem Capital (SACH)
Sachem Capital (NYSEAMERICAN:SACH) originates, services, and manages a portfolio of residential real estate mortgages. Current sentiment about the real estate market has pushed Sachem’s shares down to a price where the stock sports a very high forward dividend yield (14.1%).
However, before you assume this mortgage REIT is also at risk of a dividend cut, that isn’t necessarily the case. Although it technically reduced its quarterly payout from 14 cents to 13 cents in October, this came after Sachem raised its dividend from 12 cents to 14 cents during the preceding quarter.
As Bob Ciura of Sure Dividend argued back in October, SACH stock may have more factors working in its favor compared to mortgage REITs in general. Namely, the fact Sachem focused on making short-term loans to borrowers with good collateral. This may enable this REIT to stay resilient and maintain its current high payout.
Presidio Property Trust (SQFT)
Presidio Property Trust (NASDAQ:SQFT) is a diversified REIT, focused on acquiring what it considers “out-of-the-mainstream” properties. Unfortunately, this offbeat strategy hasn’t been a winner for shareholders.
Already one of the penny stock REITs at the start of 2022, SQFT stock fell much deeper into penny stock territory throughout the year. Mainly, due to a heavy dividend cut announced in September. Since slashing the quarterly dividend from 11 cents to 2 cents, SQFT has dropped from $3 to around $1 per share.
SQFT may still offer a fairly high dividend, with a forward yield of around 7.4%. However, Presidio has not only slashed the payout but has moved to a variable dividend policy as well. With current analyst forecasts calling for this REIT to generate funds from operations (or FFO) of just 2 cents per share for all of 2022, its current rate of the payout may not be secure.
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On the date of publication, Thomas Niel did not hold (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.