Critical Contrast: Orchid Island Capital (ORC) and Redwood Trust (RWT)
Orchid Island Capital (NYSE: ORC) and Redwood Trust (NYSE:RWT) are both small-cap finance companies, but which is the better stock? We will compare the two companies based on the strength of their dividends, institutional ownership, earnings, profitability, analyst recommendations, risk and valuation.
Orchid Island Capital pays an annual dividend of $1.68 per share and has a dividend yield of 16.7%. Redwood Trust pays an annual dividend of $1.12 per share and has a dividend yield of 6.9%. Orchid Island Capital pays out -2,799.5% of its earnings in the form of a dividend. Redwood Trust pays out 64.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Orchid Island Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.
This table compares Orchid Island Capital and Redwood Trust’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
|Orchid Island Capital||N/A||-3.33%||-0.35%|
Insider & Institutional Ownership
23.6% of Orchid Island Capital shares are held by institutional investors. Comparatively, 84.7% of Redwood Trust shares are held by institutional investors. 0.9% of Orchid Island Capital shares are held by company insiders. Comparatively, 2.3% of Redwood Trust shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.
Earnings and Valuation
This table compares Orchid Island Capital and Redwood Trust’s top-line revenue, earnings per share and valuation.
|Gross Revenue||Price/Sales Ratio||EBITDA||Earnings Per Share||Price/Earnings Ratio|
|Orchid Island Capital||$2.97 million||153.91||-$2.72 million||($0.06)||-168.14|
|Redwood Trust||$215.70 million||5.80||$134.95 million||$1.75||9.26|
Redwood Trust has higher revenue and earnings than Orchid Island Capital. Orchid Island Capital is trading at a lower price-to-earnings ratio than Redwood Trust, indicating that it is currently the more affordable of the two stocks.
Volatility and Risk
Orchid Island Capital has a beta of 0.5, suggesting that its share price is 50% less volatile than the S&P 500. Comparatively, Redwood Trust has a beta of 0.88, suggesting that its share price is 12% less volatile than the S&P 500.
This is a breakdown of current ratings and recommmendations for Orchid Island Capital and Redwood Trust, as reported by MarketBeat.com.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
|Orchid Island Capital||0||1||0||0||2.00|
Redwood Trust beats Orchid Island Capital on 9 of the 12 factors compared between the two stocks.
About Orchid Island Capital
Orchid Island Capital, Inc. is a specialty finance company that invests in residential mortgage-backed securities (RMBS). The Company’s business objective is to provide attractive risk-adjusted total returns to its investors over the long term through a combination of capital appreciation and the payment of regular monthly distributions. Its portfolio consists of two categories of Agency RMBS: pass-through Agency RMBS and structured Agency RMBS. It invests in pass-through securities, which are securities secured by residential real property in which payments of both interest and principal on the securities are generally made monthly. The mortgage loans underlying pass-through certificates are classified into three categories, including fixed-rate mortgages, adjustable-rate mortgages (ARMs) and Hybrid ARMs. It invests in structured Agency RMBS, which include collateralized mortgage obligations, interest only securities, inverse interest only securities and principal only securities.
About Redwood Trust
Redwood Trust, Inc., through its subsidiaries, focuses on investing in mortgage and other real estate related assets. The Company is engaged in mortgage banking activities. The Company operates through three segments: Residential Investments, Residential Mortgage Banking and Commercial. The Residential Investments segment includes a portfolio of investments in residential mortgage-backed securities (RMBS) retained from its Sequoia securitizations. The Residential Mortgage Banking segment consists of operating a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale, securitization, or transfer to its investment portfolio. Its Commercial segment consists of investments in multi-family securities and commercial mortgage-backed securities, as well as a remaining commercial loan investment following the sale of the remainder of its commercial mezzanine loan portfolio.
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