Critical Review: KKR Real Estate Finance Trust (NYSE:KREF) vs. Annaly Capital Management (NYSE:NLY)

KKR Real Estate Finance Trust (NYSE:KREF) and Annaly Capital Management (NYSE:NLY) are both finance companies, but which is the superior stock? We will contrast the two businesses based on the strength of their institutional ownership, valuation, analyst recommendations, earnings, profitability, risk and dividends.

Profitability

This table compares KKR Real Estate Finance Trust and Annaly Capital Management’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
KKR Real Estate Finance Trust	-58.12%	-1.45%	-0.25%
Annaly Capital Management	15.52%	16.65%	1.72%

Insider & Institutional Ownership

70.2% of KKR Real Estate Finance Trust shares are held by institutional investors. Comparatively, 51.6% of Annaly Capital Management shares are held by institutional investors. 2.1% of KKR Real Estate Finance Trust shares are held by company insiders. Comparatively, 0.2% of Annaly Capital Management shares are held by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.

Dividends

KKR Real Estate Finance Trust pays an annual dividend of $0.40 per share and has a dividend yield of 7.5%. Annaly Capital Management pays an annual dividend of $3.00 per share and has a dividend yield of 16.5%. KKR Real Estate Finance Trust pays out -12.2% of its earnings in the form of a dividend. Annaly Capital Management pays out 209.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Annaly Capital Management has raised its dividend for 2 consecutive years. Annaly Capital Management is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Recommendations

This is a summary of recent ratings and target prices for KKR Real Estate Finance Trust and Annaly Capital Management, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
KKR Real Estate Finance Trust	2	5	1	1	2.11
Annaly Capital Management	0	4	7	1	2.75

KKR Real Estate Finance Trust presently has a consensus price target of $8.83, indicating a potential upside of 66.35%. Annaly Capital Management has a consensus price target of $21.67, indicating a potential upside of 18.92%. Given KKR Real Estate Finance Trust’s higher possible upside, equities research analysts plainly believe KKR Real Estate Finance Trust is more favorable than Annaly Capital Management.

Valuation & Earnings

This table compares KKR Real Estate Finance Trust and Annaly Capital Management”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
KKR Real Estate Finance Trust	$435.60 million	0.70	-$47.05 million	($3.28)	-1.62
Annaly Capital Management	$5.96 billion	2.41	$2.03 billion	$1.43	12.74

Annaly Capital Management has higher revenue and earnings than KKR Real Estate Finance Trust. KKR Real Estate Finance Trust is trading at a lower price-to-earnings ratio than Annaly Capital Management, indicating that it is currently the more affordable of the two stocks.

Risk and Volatility

KKR Real Estate Finance Trust has a beta of 0.88, suggesting that its stock price is 12% less volatile than the S&P 500. Comparatively, Annaly Capital Management has a beta of 1.21, suggesting that its stock price is 21% more volatile than the S&P 500.

Summary

Annaly Capital Management beats KKR Real Estate Finance Trust on 13 of the 17 factors compared between the two stocks.

About KKR Real Estate Finance Trust

KKR Real Estate Finance Trust Inc., a mortgage real estate investment trust, focuses primarily on originating and acquiring transitional senior loans secured by commercial real estate (CRE) assets. It engages in the origination and purchase of credit investments related to CRE, including leveraged and unleveraged commercial real estate loans. The company has elected to be taxed as a real estate investment trust and would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. KKR Real Estate Finance Trust Inc. was incorporated in 2014 and is headquartered in New York, New York.

About Annaly Capital Management

Annaly Capital Management, Inc., a diversified capital manager, engages in mortgage finance. The company invests in agency mortgage-backed securities collateralized by residential mortgages; non-agency residential whole loans and securitized products within the residential and commercial markets; mortgage servicing rights; agency commercial mortgage-backed securities; to-be-announced forward contracts; residential mortgage loans; and agency or private label credit risk transfer securities. It has elected to be taxed as a real estate investment trust (REIT). As a REIT, it is not subject to federal income tax to the extent that it distributes its taxable income to its shareholders. The company was incorporated in 1996 and is based in New York, New York.