Critical Analysis: Orchid Island Capital (NYSE:ORC) versus New Mountain Finance (NASDAQ:NMFC)

Orchid Island Capital (NYSE:ORC) and New Mountain Finance (NASDAQ:NMFC) are both small-cap finance companies, but which is the superior business? We will compare the two companies based on the strength of their analyst recommendations, profitability, institutional ownership, valuation, dividends, risk and earnings.

Dividends

Orchid Island Capital pays an annual dividend of $1.20 per share and has a dividend yield of 21.0%. New Mountain Finance pays an annual dividend of $1.00 per share and has a dividend yield of 14.3%. Orchid Island Capital pays out 81.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. New Mountain Finance pays out -212.8% of its earnings in the form of a dividend. Orchid Island Capital has raised its dividend for 1 consecutive years. Orchid Island Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Institutional and Insider Ownership

32.7% of Orchid Island Capital shares are held by institutional investors. Comparatively, 32.1% of New Mountain Finance shares are held by institutional investors. 0.3% of Orchid Island Capital shares are held by insiders. Comparatively, 14.9% of New Mountain Finance shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Analyst Recommendations

This is a summary of recent ratings and price targets for Orchid Island Capital and New Mountain Finance, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Orchid Island Capital	1	2	0	0	1.67
New Mountain Finance	1	4	0	0	1.80

Orchid Island Capital currently has a consensus price target of $7.50, indicating a potential upside of 31.23%. New Mountain Finance has a consensus price target of $8.25, indicating a potential upside of 18.19%. Given Orchid Island Capital’s higher probable upside, research analysts clearly believe Orchid Island Capital is more favorable than New Mountain Finance.

Profitability

This table compares Orchid Island Capital and New Mountain Finance’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Orchid Island Capital	N/A	11.87%	1.35%
New Mountain Finance	-16.78%	10.94%	4.58%

Risk & Volatility

Orchid Island Capital has a beta of 1.55, indicating that its share price is 55% more volatile than the S&P 500. Comparatively, New Mountain Finance has a beta of 0.57, indicating that its share price is 43% less volatile than the S&P 500.

Earnings and Valuation

This table compares Orchid Island Capital and New Mountain Finance”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Orchid Island Capital	$414.00 million	2.76	$159.03 million	$1.48	3.86
New Mountain Finance	-$53.58 million	-12.30	$16.49 million	($0.47)	-14.85

Orchid Island Capital has higher revenue and earnings than New Mountain Finance. New Mountain Finance is trading at a lower price-to-earnings ratio than Orchid Island Capital, indicating that it is currently the more affordable of the two stocks.

Summary

Orchid Island Capital beats New Mountain Finance on 12 of the 16 factors compared between the two stocks.

About Orchid Island Capital

Orchid Island Capital, Inc., a specialty finance company, invests in residential mortgage-backed securities (RMBS) in the United States. The company’s RMBS is backed by single-family residential mortgage loans, referred as Agency RMBS. Its portfolio includes traditional pass-through Agency RMBS, such as mortgage pass through certificates and collateralized mortgage obligations; and structured Agency RMBS comprising interest only securities, inverse interest only securities, and principal only securities. The company has elected to be taxed as a real estate investment trust (REIT) for the United States federal income tax purposes. As a result, it would not be subject to corporate income tax on that portion of its net income that is distributed to stockholders, if it annually distributes dividends equal to at least 90% of its REIT taxable income to its stockholders. Orchid Island Capital, Inc. was incorporated in 2010 and is headquartered in Vero Beach, Florida.

About New Mountain Finance

New Mountain Finance Corporation (Nasdaq: NMFC), a business development company is a private equity / buyouts and loan fund specializes in directly investing and lending to middle market companies in defensive growth industries. The fund prefers investing in buyout and middle market companies. It also makes investments in debt securities at all levels of the capital structure including first and second lien debt, unsecured notes, and mezzanine securities. In some cases, its investments may also include equity interests. It targets energy, engineering and consulting services, specialty chemicals and materials, trading companies and distributors, commercial printing, diversified support services, education services, environmental and facilities services, office services and supplies, media, distributors, health care services, health care facilities, application software, business services, systems software, federal services, distribution and logistics, interactive home entertainment, telecommunication services, hydroelectric power generation, electric power generation by fossil fuels, electric power generation by nuclear fuels, health care technology, and security and alarm services. The fund seeks to invest in United States of America. It seeks to invest between $10 million and $125 million per transaction. The firm invests through both primary originations and open-market secondary purchases. It invests in companies with EBITDA between $10 million and $200 million. The fund seeks a majority stake in its portfolio companies.