Invesco Mortgage Capital (NYSE: IVR) and Capstead Mortgage (NYSE:CMO) are both financials companies, but which is the better investment? We will contrast the two businesses based on the strength of their earnings, institutional ownership, dividends, risk, valuation, profitability and analyst recommendations.

Analyst Recommendations

This is a summary of recent ratings and recommmendations for Invesco Mortgage Capital and Capstead Mortgage, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Invesco Mortgage Capital 0 2 2 0 2.50
Capstead Mortgage 0 1 1 0 2.50

Invesco Mortgage Capital presently has a consensus target price of $18.13, suggesting a potential downside of 2.76%. Capstead Mortgage has a consensus target price of $11.00, suggesting a potential upside of 18.66%. Given Capstead Mortgage’s higher possible upside, analysts clearly believe Capstead Mortgage is more favorable than Invesco Mortgage Capital.

Earnings & Valuation

This table compares Invesco Mortgage Capital and Capstead Mortgage’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Invesco Mortgage Capital $456.86 million 4.55 $254.41 million $3.18 5.86
Capstead Mortgage $213.33 million 4.18 $82.87 million $0.61 15.20

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

Profitability

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

Net Margins Return on Equity Return on Assets
Invesco Mortgage Capital 66.86% 9.06% 1.09%
Capstead Mortgage 34.00% 7.16% 0.54%

Risk & Volatility

Invesco Mortgage Capital has a beta of 0.86, meaning that its stock price is 14% less volatile than the S&P 500. Comparatively, Capstead Mortgage has a beta of 0.3, meaning that its stock price is 70% less volatile than the S&P 500.

Insider & Institutional Ownership

63.2% of Invesco Mortgage Capital shares are owned by institutional investors. Comparatively, 73.0% of Capstead Mortgage shares are owned by institutional investors. 0.3% of Invesco Mortgage Capital shares are owned by company insiders. Comparatively, 1.7% of Capstead Mortgage shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Dividends

Invesco Mortgage Capital pays an annual dividend of $1.64 per share and has a dividend yield of 8.8%. Capstead Mortgage pays an annual dividend of $0.76 per share and has a dividend yield of 8.2%. Invesco Mortgage Capital pays out 51.6% of its earnings in the form of a dividend. Capstead Mortgage pays out 124.6% 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 has increased its dividend for 3 consecutive years. Invesco Mortgage Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Invesco Mortgage Capital beats Capstead Mortgage on 12 of the 16 factors compared between the two stocks.

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.

About Capstead Mortgage

Capstead Mortgage Corporation operates as a self-managed real estate investment trust (REIT). The Company manages a leveraged portfolio of residential mortgage pass-through securities consisting of relatively short-duration adjustable-rate mortgage (ARM) securities issued and guaranteed by government-sponsored enterprises, either Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac), or by an agency of the federal government, the Government National Mortgage Association (Ginnie Mae). The Company finances its residential mortgage investments by leveraging its long-term investment capital with secured borrowings consisting primarily of borrowings under repurchase arrangements with commercial banks and other financial institutions. The Company’s portfolio of residential mortgage investments includes residential mortgage investments.

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