Western Asset Mortgage Capital (NYSE: ARR) and ARMOUR Residential REIT (NYSE:ARR) are both small-cap finance companies, but which is the better stock? We will compare the two companies based on the strength of their profitability, institutional ownership, valuation, earnings, dividends, analyst recommendations and risk.

Dividends

Western Asset Mortgage Capital pays an annual dividend of $1.24 per share and has a dividend yield of 11.1%. ARMOUR Residential REIT pays an annual dividend of $2.28 per share and has a dividend yield of 9.6%. Western Asset Mortgage Capital pays out 107.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. ARMOUR Residential REIT pays out 87.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. ARMOUR Residential REIT has raised its dividend for 3 consecutive years.

Profitability

This table compares Western Asset Mortgage Capital and ARMOUR Residential REIT’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Western Asset Mortgage Capital 37.46% 11.92% 1.18%
ARMOUR Residential REIT 48.96% 9.76% 1.46%

Valuation & Earnings

This table compares Western Asset Mortgage Capital and ARMOUR Residential REIT’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Western Asset Mortgage Capital $154.74 million 2.99 $85.09 million $1.15 9.68
ARMOUR Residential REIT $311.54 million 3.18 $181.15 million $2.62 9.03

ARMOUR Residential REIT has higher revenue and earnings than Western Asset Mortgage Capital. ARMOUR Residential REIT is trading at a lower price-to-earnings ratio than Western Asset Mortgage Capital, indicating that it is currently the more affordable of the two stocks.

Insider & Institutional Ownership

43.3% of Western Asset Mortgage Capital shares are held by institutional investors. Comparatively, 55.5% of ARMOUR Residential REIT shares are held by institutional investors. 0.5% of Western Asset Mortgage Capital shares are held by company insiders. Comparatively, 1.6% of ARMOUR Residential REIT shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Volatility & Risk

Western Asset Mortgage Capital has a beta of 0.48, suggesting that its stock price is 52% less volatile than the S&P 500. Comparatively, ARMOUR Residential REIT has a beta of 0.61, suggesting that its stock price is 39% less volatile than the S&P 500.

Analyst Ratings

This is a summary of current recommendations and price targets for Western Asset Mortgage Capital and ARMOUR Residential REIT, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Western Asset Mortgage Capital 0 0 0 0 N/A
ARMOUR Residential REIT 1 0 0 0 1.00

ARMOUR Residential REIT has a consensus price target of $21.00, suggesting a potential downside of 11.24%. Given ARMOUR Residential REIT’s higher probable upside, analysts clearly believe ARMOUR Residential REIT is more favorable than Western Asset Mortgage Capital.

Summary

ARMOUR Residential REIT beats Western Asset Mortgage Capital on 12 of the 15 factors compared between the two stocks.

Western Asset Mortgage Capital Company Profile

Western Asset Mortgage Capital Corporation operates as a real estate investment trust in the United States. It focuses on investing in, financing, and managing a portfolio of agency and non-agency residential mortgage-backed securities and commercial mortgage-backed securities, residential whole-loans, residential bridge loans, and other financial assets. The company qualifies as a real estate investment trust for federal income tax purposes. It generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was founded in 2009 and is based in Pasadena, California.

ARMOUR Residential REIT Company Profile

ARMOUR Residential REIT, Inc. invests in residential mortgage backed securities in the United States. The company is managed by ARMOUR Capital Management LP. Its securities portfolio primarily consists of the United States Government-sponsored entity's (GSE) and the Government National Mortgage Administration's issued or guaranteed securities backed by fixed rate, hybrid adjustable rate, and adjustable rate home loans, as well as unsecured notes and bonds issued by the GSE and the United States treasuries; and money market instruments. The company also invests in other securities backed by residential mortgages for which the payment of principal and interest is not guaranteed by a GSE or government agency. ARMOUR Residential REIT, Inc. has elected to be taxed as a real estate investment trust under the Internal Revenue Code. As a result, it would not be subject to corporate income tax on that portion of its net income that is distributed to shareholders. The company was founded in 2008 and is based in Vero Beach, Florida.

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