Ellington Residential Mortgage REIT (NYSE: EARN) and Invesco Mortgage Capital (NYSE:IVR) are both small-cap finance companies, but which is the better business? We will contrast the two businesses based on the strength of their profitability, analyst recommendations, institutional ownership, risk, earnings, dividends and valuation.

Analyst Ratings

This is a breakdown of recent ratings and recommmendations for Ellington Residential Mortgage REIT and Invesco Mortgage Capital, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Ellington Residential Mortgage REIT 0 2 0 0 2.00
Invesco Mortgage Capital 0 2 2 0 2.50

Ellington Residential Mortgage REIT currently has a consensus price target of $14.00, suggesting a potential upside of 9.89%. Invesco Mortgage Capital has a consensus price target of $18.13, suggesting a potential upside of 8.47%. Given Ellington Residential Mortgage REIT’s higher possible upside, analysts plainly believe Ellington Residential Mortgage REIT is more favorable than Invesco Mortgage Capital.

Volatility & Risk

Ellington Residential Mortgage REIT has a beta of 0.61, indicating that its share price is 39% less volatile than the S&P 500. Comparatively, Invesco Mortgage Capital has a beta of 0.87, indicating that its share price is 13% less volatile than the S&P 500.

Earnings and Valuation

This table compares Ellington Residential Mortgage REIT and Invesco Mortgage Capital’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
Ellington Residential Mortgage REIT $24.22 million 7.02 $11.90 million $1.07 11.91
Invesco Mortgage Capital $456.86 million 4.08 $254.41 million $3.72 4.49

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

Dividends

Ellington Residential Mortgage REIT pays an annual dividend of $1.60 per share and has a dividend yield of 12.6%. Invesco Mortgage Capital pays an annual dividend of $1.64 per share and has a dividend yield of 9.8%. Ellington Residential Mortgage REIT pays out 149.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Invesco Mortgage Capital pays out 44.1% of its earnings in the form of a dividend.

Profitability

This table compares Ellington Residential Mortgage REIT and Invesco Mortgage Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Ellington Residential Mortgage REIT 40.44% 12.84% 1.22%
Invesco Mortgage Capital 66.86% 9.06% 1.09%

Institutional and Insider Ownership

66.3% of Ellington Residential Mortgage REIT shares are held by institutional investors. Comparatively, 63.1% of Invesco Mortgage Capital shares are held by institutional investors. 2.7% of Ellington Residential Mortgage REIT shares are held by insiders. Comparatively, 0.3% of Invesco Mortgage Capital shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Summary

Invesco Mortgage Capital beats Ellington Residential Mortgage REIT on 9 of the 16 factors compared between the two stocks.

About Ellington Residential Mortgage REIT

Ellington Residential Mortgage REIT is a real estate investment trust. The Company conducts its business through its subsidiaries, EARN OP GP LLC and Ellington Residential Mortgage LP (the Operating Partnership). It specializes in acquiring, investing in and managing residential mortgage- and real estate-related assets. It constructs and managing a portfolio consisting of residential mortgage-backed securities (RMBS) for which the principal and interest payments are guaranteed by the United States Government agency or the United States Government-sponsored entity (Agency RMBS) and, to a lesser extent, RMBS backed by prime jumbo, Alternative A-paper manufactured housing, and subprime residential mortgage loans (non-Agency RMBS). Its Agency RMBS include residential mortgage pass-through certificates, collateralized mortgage obligations (CMOs) and to-be-announced mortgage pass-through certificates (TBAs). Its non-agency RMBS include investment grade and non-investment grade classes.

About Invesco Mortgage Capital

Invesco Mortgage Capital Inc. is a holding company, which conducts its businesses through IAS Operating Partnership LP (the Operating Partnership) and subsidiaries. The Company’s objective is to provide risk-adjusted returns to its investors through dividends and through capital appreciation. It invests in residential mortgage-backed securities that are guaranteed by the United States Government agency, such as the Government National Mortgage Association or a federally chartered corporation, such as the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation (collectively Agency RMBS); RMBS that are not guaranteed by the United States Government agency; Credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises; commercial mortgage-backed securities; residential and commercial mortgage loans, and other real estate-related financing arrangements. It is externally managed and advised by Invesco Advisers, Inc.

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