Two Harbors Investments (NYSE:TWO – Get Free Report) and AFC Gamma (NASDAQ:AFCG – Get Free Report) are both small-cap finance companies, but which is the better investment? We will compare the two businesses based on the strength of their institutional ownership, profitability, analyst recommendations, dividends, valuation, earnings and risk.
Dividends
Two Harbors Investments pays an annual dividend of $1.36 per share and has a dividend yield of 13.4%. AFC Gamma pays an annual dividend of $0.60 per share and has a dividend yield of 21.6%. Two Harbors Investments pays out -54.4% of its earnings in the form of a dividend. AFC Gamma pays out -57.7% 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. Two Harbors Investments has increased its dividend for 1 consecutive years. AFC Gamma is clearly the better dividend stock, given its higher yield and lower payout ratio.
Valuation and Earnings
This table compares Two Harbors Investments and AFC Gamma”s revenue, earnings per share (EPS) and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio | |
| Two Harbors Investments | $450.15 million | 2.35 | $298.17 million | ($2.50) | -4.05 |
| AFC Gamma | $51.99 million | 1.21 | $16.78 million | ($1.04) | -2.67 |
Two Harbors Investments has higher revenue and earnings than AFC Gamma. Two Harbors Investments is trading at a lower price-to-earnings ratio than AFC Gamma, indicating that it is currently the more affordable of the two stocks.
Analyst Ratings
This is a summary of recent ratings for Two Harbors Investments and AFC Gamma, as reported by MarketBeat.com.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| Two Harbors Investments | 1 | 5 | 2 | 1 | 2.33 |
| AFC Gamma | 1 | 4 | 0 | 0 | 1.80 |
Two Harbors Investments currently has a consensus target price of $11.96, suggesting a potential upside of 17.97%. AFC Gamma has a consensus target price of $5.75, suggesting a potential upside of 106.83%. Given AFC Gamma’s higher possible upside, analysts clearly believe AFC Gamma is more favorable than Two Harbors Investments.
Insider & Institutional Ownership
64.2% of Two Harbors Investments shares are held by institutional investors. Comparatively, 26.5% of AFC Gamma shares are held by institutional investors. 0.6% of Two Harbors Investments shares are held by insiders. Comparatively, 25.1% of AFC Gamma shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.
Profitability
This table compares Two Harbors Investments and AFC Gamma’s net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| Two Harbors Investments | -44.10% | 11.92% | 1.32% |
| AFC Gamma | -70.46% | 8.45% | 4.90% |
Risk and Volatility
Two Harbors Investments has a beta of 1.2, suggesting that its stock price is 20% more volatile than the S&P 500. Comparatively, AFC Gamma has a beta of 1.03, suggesting that its stock price is 3% more volatile than the S&P 500.
Summary
Two Harbors Investments beats AFC Gamma on 11 of the 18 factors compared between the two stocks.
About Two Harbors Investments
Two Harbors Investment Corp. invests in, finances, and manages mortgage servicing rights (MSRs), agency residential mortgage-backed securities (RMBS), and other financial assets through RoundPoint in the United States. The company target assets include agency RMBS collateralized by fixed rate mortgage loans, adjustable rate mortgage loans, hybrid mortgage loans, or derivatives; and other assets, such as financial and mortgage-related assets, including non-agency securities and non-hedging transactions. It qualifies as a REIT for federal income tax purposes. As a REIT, the company must distribute at least 90% of annual taxable income to its stockholders. Two Harbors Investment Corp. was incorporated in 2009 and is headquartered in St. Louis Park, Minnesota.
About AFC Gamma
AFC Gamma, Inc. originates, structures, underwrites, and invests in senior secured loans, and other various commercial real estate loans and debt securities for established companies operating in the cannabis industry. It primarily originates loans structured as senior loans secured by real estate, equipment, and licenses and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties. The company has elected and qualified to be taxed as a real estate investment trust for the United States federal income tax purposes under the Internal Revenue Code of 1986. AFC Gamma, Inc. was incorporated in 2020 and is based in West Palm Beach, Florida.
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