Financial Contrast: Ellington Residential Mortgage REIT (EARN) and Capstead Mortgage (CMO)

Ellington Residential Mortgage REIT (NYSE: EARN) and Capstead Mortgage (NYSE:CMO) are both small-cap finance companies, but which is the superior stock? We will compare the two companies based on the strength of their analyst recommendations, profitability, risk, valuation, institutional ownership, dividends and earnings.

Valuation & Earnings

This table compares Ellington Residential Mortgage REIT and Capstead Mortgage’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Ellington Residential Mortgage REIT $24.22 million 7.06 $11.90 million $1.07 11.97
Capstead Mortgage $213.33 million 4.12 $82.87 million $0.61 14.98

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

Volatility & Risk

Ellington Residential Mortgage REIT has a beta of 0.59, indicating that its stock price is 41% less volatile than the S&P 500. Comparatively, Capstead Mortgage has a beta of 0.3, indicating that its stock price is 70% less volatile than the S&P 500.

Dividends

Ellington Residential Mortgage REIT pays an annual dividend of $1.60 per share and has a dividend yield of 12.5%. Capstead Mortgage pays an annual dividend of $0.76 per share and has a dividend yield of 8.3%. 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. 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. Capstead Mortgage has increased its dividend for 3 consecutive years.

Institutional and Insider Ownership

66.7% of Ellington Residential Mortgage REIT shares are owned by institutional investors. Comparatively, 73.0% of Capstead Mortgage shares are owned by institutional investors. 2.7% of Ellington Residential Mortgage REIT 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 hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for Ellington Residential Mortgage REIT and Capstead Mortgage, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Ellington Residential Mortgage REIT 0 2 0 0 2.00
Capstead Mortgage 0 1 1 0 2.50

Ellington Residential Mortgage REIT presently has a consensus target price of $14.00, indicating a potential upside of 9.29%. Capstead Mortgage has a consensus target price of $11.00, indicating a potential upside of 20.35%. Given Capstead Mortgage’s stronger consensus rating and higher probable upside, analysts plainly believe Capstead Mortgage is more favorable than Ellington Residential Mortgage REIT.

Profitability

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

Net Margins Return on Equity Return on Assets
Ellington Residential Mortgage REIT 40.44% 12.02% 1.17%
Capstead Mortgage 34.00% 7.16% 0.54%

Summary

Capstead Mortgage beats Ellington Residential Mortgage REIT on 9 of the 17 factors compared between the two stocks.

Ellington Residential Mortgage REIT Company Profile

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.

Capstead Mortgage Company Profile

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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