Hatteras Financial (NYSE: HTS) and Dynex Capital (NYSE:DX) are both small-cap financials companies, but which is the better investment? We will compare the two companies based on the strength of their risk, dividends, earnings, profitability, valuation, analyst recommendations and institutional ownership.

Analyst Ratings

This is a breakdown of recent ratings and target prices for Hatteras Financial and Dynex Capital, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Hatteras Financial 0 0 0 0 N/A
Dynex Capital 0 2 1 0 2.33

Dynex Capital has a consensus price target of $7.38, suggesting a potential upside of 4.46%. Given Dynex Capital’s higher probable upside, analysts plainly believe Dynex Capital is more favorable than Hatteras Financial.

Dividends

Hatteras Financial pays an annual dividend of $1.80 per share and has a dividend yield of 11.0%. Dynex Capital pays an annual dividend of $0.72 per share and has a dividend yield of 10.2%. Hatteras Financial pays out -2,000.0% of its earnings in the form of a dividend. Dynex Capital pays out 50.0% 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. Hatteras Financial is clearly the better dividend stock, given its higher yield and lower payout ratio.

Institutional & Insider Ownership

44.7% of Dynex Capital shares are owned by institutional investors. 7.1% of Dynex Capital shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Profitability

This table compares Hatteras Financial and Dynex Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Hatteras Financial N/A -16.93% -1.89%
Dynex Capital 86.86% 11.08% 1.27%

Valuation & Earnings

This table compares Hatteras Financial and Dynex Capital’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Hatteras Financial N/A N/A N/A ($0.09) -181.00
Dynex Capital $91.90 million 4.09 $43.09 million $1.44 4.90

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

Summary

Dynex Capital beats Hatteras Financial on 9 of the 11 factors compared between the two stocks.

Hatteras Financial Company Profile

Hatteras Financial Corp. is an externally managed mortgage real estate investment trust (REIT) that invests in single-family residential mortgage real estate assets, such as mortgage-backed security (MBS), mortgage servicing right (MSR), residential mortgage loans and other financial assets. MBS are pass-through securities consisting of a pool of mortgage loans. Its primary business is owning and managing agency securities, with a primary focus on adjustable-rate mortgage securities. Its primary investment assets include Agency MBS; other agency issued securities, such as credit-risk transfer bonds; MSR; non-agency securities; residential mortgage loans, and other real estate related assets as permitted by its investment guidelines and REIT requirements. Its business operations consist of the Hatteras Financial Corp., Onslow Bay Financial LLC, First Winston Securities, Inc. and Wind River TRS LLC. It is externally managed and advised by its manager, Atlantic Capital Advisors LLC.

Dynex Capital Company Profile

Dynex Capital, Inc. is an internally managed mortgage real estate investment trust, which invests in residential and commercial mortgage securities on a leveraged basis. The Company’s objective is to provide attractive risk-adjusted returns to its shareholders over the long term that is reflective of a leveraged fixed income portfolio with a focus on capital preservation. It seeks to provide returns to its shareholders through regular quarterly dividends and through capital appreciation. It invests in Agency and non-Agency mortgage-backed securities (MBS). MBS consists of residential MBS (RMBS), commercial MBS (CMBS) and CMBS interest-only securities. Agency MBS have a guaranty of principal payment by an agency of the United States Government or a government-sponsored entity (GSE), such as Fannie Mae and Freddie Mac.

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