Analyzing Two Harbors Investments (TWO) and ARMOUR Residential REIT (ARR)

Two Harbors Investments (NYSE: TWO) and ARMOUR Residential REIT (NYSE:ARR) are both financials companies, but which is the superior business? We will contrast the two companies based on the strength of their earnings, analyst recommendations, dividends, risk, institutional ownership, profitability and valuation.

Risk and Volatility

Two Harbors Investments has a beta of 0.52, indicating that its share price is 48% less volatile than the S&P 500. Comparatively, ARMOUR Residential REIT has a beta of 0.75, indicating that its share price is 25% less volatile than the S&P 500.

Institutional & Insider Ownership

57.5% of ARMOUR Residential REIT shares are held by institutional investors. 1.2% of Two Harbors Investments shares are held by company insiders. Comparatively, 1.5% of ARMOUR Residential REIT shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Analyst Ratings

This is a summary of current recommendations for Two Harbors Investments and ARMOUR Residential REIT, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Two Harbors Investments 0 2 4 0 2.67
ARMOUR Residential REIT 0 0 0 0 N/A

Two Harbors Investments presently has a consensus price target of $17.92, indicating a potential upside of 11.01%. Given Two Harbors Investments’ higher possible upside, research analysts plainly believe Two Harbors Investments is more favorable than ARMOUR Residential REIT.

Profitability

This table compares Two Harbors Investments and ARMOUR Residential REIT’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Two Harbors Investments 63.23% 10.27% 1.52%
ARMOUR Residential REIT 76.46% 9.39% 1.37%

Valuation & Earnings

This table compares Two Harbors Investments and ARMOUR Residential REIT’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Two Harbors Investments $633.49 million 4.45 $353.27 million $2.90 5.57
ARMOUR Residential REIT $263.99 million 4.08 -$45.51 million $5.06 5.08

Two Harbors Investments has higher revenue and earnings than ARMOUR Residential REIT. ARMOUR Residential REIT is trading at a lower price-to-earnings ratio than Two Harbors Investments, indicating that it is currently the more affordable of the two stocks.

Dividends

Two Harbors Investments pays an annual dividend of $2.11 per share and has a dividend yield of 13.1%. ARMOUR Residential REIT pays an annual dividend of $2.28 per share and has a dividend yield of 8.9%. Two Harbors Investments pays out 72.8% of its earnings in the form of a dividend. ARMOUR Residential REIT pays out 45.1% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Two Harbors Investments has increased its dividend for 2 consecutive years. Two Harbors Investments is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Two Harbors Investments beats ARMOUR Residential REIT on 9 of the 16 factors compared between the two stocks.

Two Harbors Investments Company Profile

Two Harbors Investment Corp. is a real estate investment trust. The Company is focused on investing in, financing and managing residential mortgage-backed securities (RMBS), mortgage servicing rights (MSR), commercial real estate and other financial assets (collectively known as target assets). Its investment objective is to provide attractive risk-adjusted total return to its stockholders over the long-term, primarily through dividends and secondarily through capital appreciation. The Company focuses on managing various associated risks, including interest rate, prepayment, credit, mortgage spread and financing risk. The Company finances its RMBS and commercial real estate assets through short- and long-term borrowings structured as repurchase agreements and advances from the Federal Home Loan Bank of Des Moines, or the FHLB. It also finances its MSR through revolving credit facilities.

ARMOUR Residential REIT Company Profile

ARMOUR Residential REIT, Inc. is a real estate investment trust. The Company invests in and manages a leveraged portfolio of mortgage-backed securities (MBS) and mortgage loans. The Company invests in residential mortgage backed securities issued or guaranteed by a United States Government-sponsored enterprise (GSE), such as the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, or a government agency, such as the Government National Mortgage Association (collectively, Agency Securities). The Company also invests in Interest-Only Securities, which are the interest portions of Agency Securities that are separated and sold individually from the principal portion of the same payment. The Company raises funds for additional funding through equity offerings (including preferred equity), unsecured debt securities and convertible securities (including warrants, preferred equity and debt), among others. It is managed by ARMOUR Capital Management LP.

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