Real Estate Investment Trusts (REIT) represent great investment opportunities, mainly because they pay most of their profits as dividends, which is why they sport solid dividend yields and offer investors a steady flow of payments aside from the profits made from the appreciation of the stock. However, out of thousands of REITs that are publicly traded, it’s hard to pick the ones that are the safest and the ones that can offer high chances of stock gains. Some of the REITs are rather expensive, such as Equinix Inc (NASDAQ:EQIX), which trades at around $289, while others are too cheap, like Wheeler Real Estate Investment Trust Inc (NASDAQ:WHLR), valued at less than $2.00 and which has a dividend yield of over 11%. One of the easiest ways to identify the best REITs is to follow the hedge fund activity that surrounds them and with this in mind, we have identified five cheap REITs that currently trade around and below $10 per share, sorting them in terms of popularity among the over 700 hedge funds from our database.
While often an overlooked metric, hedge fund sentiment can provide a lot of insights to retail investors. Hedge funds spend a lot of time and always conduct due diligence while making their picks, which makes them the perfect investors to emulate, without spending a lot of own resources. Our research has shown that imitating hedge funds’ 15 most popular small-cap picks can generate returns as much as nearly one percentage point per month and our strategy that follows this approach has returned over 118% since it went live in August 2012; it has outperformed the S&P 500 ETF (SPY) by some 60 percentage points since then (see more details here).
With this in mind, let’s take a closer look at the REITs we’ve selected, starting with Two Harbors Investment Corp (NYSE:TWO), a $3.50 billion residential REIT, which pays a dividend of $0.26 per quarter and trades slightly below $10, providing a yield of almost 11%. The main assets of Two Harbors Investment Corp (NYSE:TWO) are represented by Agency residential mortgage-backed securities, whose interest payments and principal amount are secured by Ginnie Mae, Fannie Mar and Freddie Mac. At the end of June, Two Harbors Investments Corp could be found in the equity portfolios of 20 funds from our database, which held in aggregate $157.18 million worth of stock, equal to 4.40% of the outstanding stock, significantly higher compared to 15 funds with stakes valued at $148.21 million a quarter earlier. Among these funds, the largest stake is held by billionaire Israel Englander’s Millennium Management, which upped its stake by 43% during the second quarter to 3.98 million shares. Another billionaire investor bullish on Two Harbors Investment Corp (NYSE:TWO) is Ken Griffin of Citadel Investment Group, which almost doubled its holding to 1.28 million shares.