Critical Comparison: SmartFinancial (NASDAQ:SMBK) vs. Heritage Financial (NASDAQ:HFWA)

Heritage Financial (NASDAQ:HFWA) and SmartFinancial (NASDAQ:SMBK) are both small-cap finance companies, but which is the better business? We will contrast the two companies based on the strength of their profitability, valuation, analyst recommendations, risk, earnings, dividends and institutional ownership.

Dividends

Heritage Financial pays an annual dividend of $1.00 per share and has a dividend yield of 3.6%. SmartFinancial pays an annual dividend of $0.36 per share and has a dividend yield of 0.7%. Heritage Financial pays out 47.6% of its earnings in the form of a dividend. SmartFinancial pays out 10.6% 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. Heritage Financial has raised its dividend for 14 consecutive years and SmartFinancial has raised its dividend for 3 consecutive years. Heritage Financial is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Volatility & Risk

Heritage Financial has a beta of 0.5, indicating that its share price is 50% less volatile than the S&P 500. Comparatively, SmartFinancial has a beta of 0.71, indicating that its share price is 29% less volatile than the S&P 500.

Insider and Institutional Ownership

78.3% of Heritage Financial shares are held by institutional investors. Comparatively, 58.8% of SmartFinancial shares are held by institutional investors. 1.5% of Heritage Financial shares are held by company insiders. Comparatively, 6.9% of SmartFinancial shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Analyst Recommendations

This is a breakdown of recent ratings and recommmendations for Heritage Financial and SmartFinancial, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Heritage Financial	1	2	4	0	2.43
SmartFinancial	0	4	2	1	2.57

Heritage Financial currently has a consensus target price of $32.67, suggesting a potential upside of 18.57%. SmartFinancial has a consensus target price of $50.42, suggesting a potential downside of 0.93%. Given Heritage Financial’s higher probable upside, analysts plainly believe Heritage Financial is more favorable than SmartFinancial.

Profitability

This table compares Heritage Financial and SmartFinancial’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Heritage Financial	20.44%	8.78%	1.15%
SmartFinancial	12.67%	7.33%	0.71%

Valuation and Earnings

This table compares Heritage Financial and SmartFinancial”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Heritage Financial	$335.97 million	3.36	$67.53 million	$2.10	13.12
SmartFinancial	$210.19 million	4.14	$36.14 million	$3.39	15.01

Heritage Financial has higher revenue and earnings than SmartFinancial. Heritage Financial is trading at a lower price-to-earnings ratio than SmartFinancial, indicating that it is currently the more affordable of the two stocks.

Summary

Heritage Financial beats SmartFinancial on 10 of the 18 factors compared between the two stocks.

About Heritage Financial

Heritage Financial Corporation operates as the bank holding company for Heritage Bank that provides various financial services to small and medium sized businesses and individuals in the United States. It accepts various deposit products, such as noninterest demand deposits, interest bearing demand deposits, money market accounts, savings accounts, personal checking accounts, and certificates of deposit. The company’s loan portfolio includes commercial and industrial loans, owner-occupied and non-owner occupied commercial real estate loans, one-to-four family residential loans, real estate construction and land development loans, consumer loans, commercial business loans, lines of credit, term equipment financing, and term real estate loans, as well as commercial business loans to a range of businesses in industries that include real estate and rental and leasing, healthcare, accommodation and food services, retail trade, and construction. It also originates loans that are guaranteed by the U.S. Small Business Administration; and provides objective advice from trusted advisers. The company was formerly known as Heritage Financial Corporation, M.H.C. and changed its name to Heritage Financial Corporation in 1998. Heritage Financial Corporation was founded in 1927 and is headquartered in Olympia, Washington.

About SmartFinancial

SmartFinancial, Inc. operates as the bank holding company for SmartBank that provides various financial services to individuals and corporate customers in Tennessee, Alabama, and Florida. It operates through Commercial Real Estate, Consumer Real Estate, Construction and Land Development, Commercial and Industrial, Leases, and Consumer and Other segments. The company offers noninterest-bearing and interest-bearing checking, interest-bearing demand, savings, money market, time deposit, individual retirement accounts, as well as certificates of deposit. It also provides commercial and residential real estate, consumer real estate, and construction and land development loans; commercial and financial loans and leases; commercial business and mortgage loans; and direct consumer installment, educational, agriculture, and other revolving credit loans; equipment financing, heavy equipment, semis, and trailers loans and leases to small and mid-size companies; letters of credit; and overdraft facilities. In addition, the company offers wealth management, insurance, mortgage origination, and internet and mobile banking services. SmartFinancial, Inc. is headquartered in Knoxville, Tennessee.