Redwood Trust (NYSE: RWT) and Capital Trust (NYSE:BXMT) are both finance companies, but which is the superior stock? We will contrast the two businesses based on the strength of their dividends, valuation, risk, profitability, analyst recommendations, earnings and institutional ownership.

Profitability

This table compares Redwood Trust and Capital Trust’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Redwood Trust 46.04% 12.02% 2.50%
Capital Trust 55.05% 8.76% 2.43%

Analyst Recommendations

This is a summary of recent recommendations for Redwood Trust and Capital Trust, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Redwood Trust 0 0 0 0 N/A
Capital Trust 0 3 3 0 2.50

Capital Trust has a consensus price target of $33.50, suggesting a potential upside of 7.75%. Given Capital Trust’s higher probable upside, analysts plainly believe Capital Trust is more favorable than Redwood Trust.

Risk and Volatility

Redwood Trust has a beta of 0.88, meaning that its share price is 12% less volatile than the S&P 500. Comparatively, Capital Trust has a beta of 0.8, meaning that its share price is 20% less volatile than the S&P 500.

Valuation and Earnings

This table compares Redwood Trust and Capital Trust’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Redwood Trust $215.70 million 5.77 $134.95 million $1.75 9.22
Capital Trust $298.97 million 9.86 $220.95 million $2.33 13.34

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

Dividends

Redwood Trust pays an annual dividend of $1.12 per share and has a dividend yield of 6.9%. Capital Trust pays an annual dividend of $2.48 per share and has a dividend yield of 8.0%. Redwood Trust pays out 64.0% of its earnings in the form of a dividend. Capital Trust pays out 106.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Capital Trust has increased its dividend for 3 consecutive years. Capital Trust is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Insider and Institutional Ownership

85.8% of Redwood Trust shares are owned by institutional investors. Comparatively, 61.9% of Capital Trust shares are owned by institutional investors. 2.3% of Redwood Trust shares are owned by company insiders. Comparatively, 0.9% of Capital Trust shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Summary

Capital Trust beats Redwood Trust on 10 of the 16 factors compared between the two stocks.

Redwood Trust Company Profile

Redwood Trust, Inc., through its subsidiaries, focuses on investing in mortgage and other real estate related assets. The Company is engaged in mortgage banking activities. The Company operates through three segments: Residential Investments, Residential Mortgage Banking and Commercial. The Residential Investments segment includes a portfolio of investments in residential mortgage-backed securities (RMBS) retained from its Sequoia securitizations. The Residential Mortgage Banking segment consists of operating a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale, securitization, or transfer to its investment portfolio. Its Commercial segment consists of investments in multi-family securities and commercial mortgage-backed securities, as well as a remaining commercial loan investment following the sale of the remainder of its commercial mezzanine loan portfolio.

Capital Trust Company Profile

Blackstone Mortgage Trust, Inc. is a holding company. The Company conducts its operations as a real estate investment trust for the United States federal income tax purposes. The Company originates and purchases senior loans collateralized by properties in North America and Europe. The Company’s business is focused on originating or acquiring senior, floating rate mortgage loans that are secured by a first priority mortgage on commercial real estate assets primarily in the office, lodging, retail, residential and industrial sectors. These investments may be in the form of whole loans or may also include pari passu participations within mortgage loans. It directly originates, co-originates and acquires debt instruments in conjunction with acquisitions, refinancings and recapitalizations of commercial real estate. The Company’s manager is BXMT Advisors L.L.C.

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