MFA Financial (NYSE: MFA) and Starwood Property Trust (NYSE:STWD) are both mid-cap finance companies, but which is the better stock? We will compare the two companies based on the strength of their earnings, risk, institutional ownership, profitability, dividends, analyst recommendations and valuation.

Profitability

This table compares MFA Financial and Starwood Property Trust’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
MFA Financial 61.94% 10.12% 2.58%
Starwood Property Trust 55.89% 11.39% 0.69%

Earnings and Valuation

This table compares MFA Financial and Starwood Property Trust’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
MFA Financial $376.15 million 9.19 $309.13 million $0.78 11.18
Starwood Property Trust $546.16 million 10.39 $456.67 million $1.76 12.43

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

Insider and Institutional Ownership

80.1% of MFA Financial shares are owned by institutional investors. Comparatively, 68.6% of Starwood Property Trust shares are owned by institutional investors. 0.9% of MFA Financial shares are owned by insiders. Comparatively, 2.4% of Starwood Property Trust shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Volatility & Risk

MFA Financial has a beta of 0.71, suggesting that its stock price is 29% less volatile than the S&P 500. Comparatively, Starwood Property Trust has a beta of 0.53, suggesting that its stock price is 47% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current ratings and recommmendations for MFA Financial and Starwood Property Trust, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
MFA Financial 0 2 2 0 2.50
Starwood Property Trust 0 1 2 0 2.67

MFA Financial currently has a consensus price target of $8.50, suggesting a potential downside of 2.52%. Starwood Property Trust has a consensus price target of $24.50, suggesting a potential upside of 12.03%. Given Starwood Property Trust’s stronger consensus rating and higher probable upside, analysts plainly believe Starwood Property Trust is more favorable than MFA Financial.

Dividends

MFA Financial pays an annual dividend of $0.80 per share and has a dividend yield of 9.2%. Starwood Property Trust pays an annual dividend of $1.92 per share and has a dividend yield of 8.8%. MFA Financial pays out 102.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Starwood Property Trust pays out 109.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. MFA Financial is clearly the better dividend stock, given its higher yield and lower payout ratio.

Summary

Starwood Property Trust beats MFA Financial on 8 of the 15 factors compared between the two stocks.

About MFA Financial

MFA Financial, Inc. is engaged in the real estate finance business. The Company’s subsidiaries invest in residential mortgage assets, including Non-Agency mortgage-backed securities (MBS), Agency MBS, residential whole loans and credit risk transfer (CRT) securities. The Company’s Non-Agency MBS portfolio primarily consists of Legacy Non-Agency MBS and 3 Year Step-up securities. In addition to Non-Agency MBS investments, the Company invests in re-performing and non-performing residential whole loans through its interests in certain consolidated trusts. The mortgages collateralizing its Agency MBS portfolio are predominantly Hybrids, 15-year fixed-rate mortgages and adjustable-rate mortgages (ARMs).

About Starwood Property Trust

Starwood Property Trust, Inc. is a real estate investment trust. The Company operates through three business segments: Real estate lending (the Lending Segment), which engages primarily in originating, acquiring, financing and managing commercial first mortgages, subordinated mortgages, mezzanine loans, preferred equity, commercial mortgage-backed securities (CMBS), residential mortgage-backed securities, and other real estate and real estate-related debt investments; Real estate investing and servicing (the Investing and Servicing Segment), which includes a servicing business in the United States that manages and works out problem assets; an investment business that selectively acquires and manages unrated, investment grade and non-investment grade rated CMBS, and a mortgage loan business, and Real estate property (the Property Segment), which engages primarily in acquiring and managing equity interests in stabilized commercial real estate properties.

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