As we approach the end of a tumultuous 2011, it's time to look back at the biggest winners and losers.

So in this series, that's exactly what we're doing, sector by sector. Today, let's take a look at the biggest diversified REIT losers. First the backstory; then the results.

The backstory
This year, we saw U.S. Treasuries get downgraded from AAA status while Congress played politics instead of fixing the budget, a domestic economy that has been recovering from its financial crisis in fits and starts, big trouble in Europe, and a Chinese economy that doesn't seem so bulletproof.

The daily volatility in the financial industry has been tremendous, but REITs haven't been swinging around as wildly as banks. Part of that is European debt fears manifesting in bank stock volatility, but the REITs have also been less volatile because of the dividend yields that are a hallmark of the sector. This is because a REIT has to pay out 90% of its taxable income to keep its favorable tax status.

Another thing to keep in mind with REITs is that most are heavily leveraged. As a result, any change in the Federal Reserve's actions to keep interest rates low could hurt future debt refinancings.

The worst diversified REIT stocks of 2011
For context, the S&P 500 has returned 2.4% after dividends this year. In other words, the market has been basically flat.

REIT Name

2011 Dividend-Adjusted Return

Price-to-Tangible Book Value

CapLease (NYSE: LSE) (26.1%) 0.9
Cousins Properties (NYSE: CUZ) (20.8%) 1.2
Winthrop Realty Trust (NYSE: FUR) (14.4%) 1.0
Investors Real Estate Trust (Nasdaq: IRET) (10.6%) 1.9
Washington Real Estate Investment Trust (NYSE: WRE) (5.7%) 2.1
Vornado Realty Trust (NYSE: VNO) (4.7%) 2.6

Source: S&P Capital IQ.

This year hasn't been kind to these various diversified REITs as the economy continues its fits-and-starts recovery. This is despite current dividend yields that span from 2.8% to 6.8%. So as you look at this list for investing ideas, remember that nice dividends don't guarantee nice returns.

All types of real estate can be tricky in this environment, but we're seeing many of these REITs trading close to tangible book value. If you have the time, know-how, and inclination, finding the hidden gems amid the rubble could be quite profitable. But be careful.

If you're looking for other opportunities in the financial space, let me leave you with a regional bank that has some of the best operational numbers I've ever seen. I wrote about it in our brand new free report: "The Stocks Only the Smartest Investors Are Buying." I invite you to take a free copy to find out the name of the bank I believe Warren Buffett would be interested in if he could still invest in small banks.

Anand Chokkavelu doesn't own shares of any company mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.