There is a lot of appeal for low priced stocks to individual investors. Just from a feel good point of view, it can be more satisfying to buy 500 shares of a $10 stock than 66 shares of a $75 per share stock, even if your outlay is pretty much the same. Besides the satisfaction of owning a lot of shares, there are some valid total-return focused reasons for investors to seek out low priced stocks.
A low priced stock can be a good candidate for a significant share price gain. Under $10 shares are often not widely followed by the big (and smaller) Wall Street analyst firms. If one of these companies gets discovered either by the analysts or the general public, the share price can take off, putting some nice capital gains into your brokerage account. Before I provide a few low price high-yield investment ideas, I want to share a couple of examples from my newsletter, The Dividend Hunter, that used this same strategy to produce fantastic gains for my subscribers.
From its May 2013 spin-off as a new company through October 2014, New Residential Investment Corp (NYSE:NRZ) was a high-yield (11% yield) finance REIT with a share price that fluctuated in a $5.90 to about $6.50 range. In the fall of 2014, the company declared a two-for-one reverse stock split to bring the share price above $10. That move was designed to get more market visibility. Then in February 2015 New Residential made a deal to buy out its major competitor. Investors noticed, and the share price took off to well above $16. Investors who purchased when I first recommended NRZ in August 2014 have realized a 44% total return since and are still earning a 9% yield.
Hannon Armstrong Sustainable Infrastructure Capital (NYSE:HASI) is another specialty finance REIT that did fine during its first two years of existence, with a $12 to $13 stock price range and a 7.5% yield. However, in February 2015 a top REIT analyst recommended HASI and now the share price is at about $18.50. My subscribers have earned 35% since I recommended this low-priced stock in September 2014.
