Dynex Capital (NYSE: DX) and Ares Commercial Real Estate Corporation (NYSE:ACRE) are both small-cap finance companies, but which is the superior business? We will contrast the two companies based on the strength of their valuation, earnings, profitabiliy, dividends, analyst recommendations, risk and institutional ownership.

Analyst Ratings

This is a breakdown of current recommendations for Dynex Capital and Ares Commercial Real Estate Corporation, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Dynex Capital 0 3 0 0 2.00
Ares Commercial Real Estate Corporation 1 2 3 0 2.33

Dynex Capital currently has a consensus target price of $7.13, indicating a potential upside of 2.81%. Ares Commercial Real Estate Corporation has a consensus target price of $13.90, indicating a potential upside of 8.09%. Given Ares Commercial Real Estate Corporation’s stronger consensus rating and higher probable upside, analysts clearly believe Ares Commercial Real Estate Corporation is more favorable than Dynex Capital.

Institutional and Insider Ownership

44.6% of Dynex Capital shares are owned by institutional investors. Comparatively, 67.2% of Ares Commercial Real Estate Corporation shares are owned by institutional investors. 7.1% of Dynex Capital shares are owned by company insiders. Comparatively, 1.8% of Ares Commercial Real Estate Corporation shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Volatility and Risk

Dynex Capital has a beta of 0.85, suggesting that its share price is 15% less volatile than the S&P 500. Comparatively, Ares Commercial Real Estate Corporation has a beta of 0.69, suggesting that its share price is 31% less volatile than the S&P 500.

Profitability

This table compares Dynex Capital and Ares Commercial Real Estate Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Dynex Capital 100.40% 11.78% 1.30%
Ares Commercial Real Estate Corporation 49.39% 6.74% 2.09%

Dividends

Dynex Capital pays an annual dividend of $0.72 per share and has a dividend yield of 10.4%. Ares Commercial Real Estate Corporation pays an annual dividend of $1.08 per share and has a dividend yield of 8.4%. Dynex Capital pays out 44.2% of its earnings in the form of a dividend. Ares Commercial Real Estate Corporation pays out 73.5% 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. Dynex Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.

Earnings and Valuation

This table compares Dynex Capital and Ares Commercial Real Estate Corporation’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Dynex Capital $96.98 million 3.52 $80.20 million $1.63 4.25
Ares Commercial Real Estate Corporation $45.22 million 8.10 $41.85 million $1.47 8.75

Dynex Capital has higher revenue and earnings than Ares Commercial Real Estate Corporation. Dynex Capital is trading at a lower price-to-earnings ratio than Ares Commercial Real Estate Corporation, indicating that it is currently the more affordable of the two stocks.

Summary

Dynex Capital beats Ares Commercial Real Estate Corporation on 9 of the 16 factors compared between the two stocks.

About Dynex Capital

Dynex Capital, Inc. is an internally managed mortgage real estate investment trust, which invests in residential and commercial mortgage securities on a leveraged basis. The Company’s objective is to provide attractive risk-adjusted returns to its shareholders over the long term that is reflective of a leveraged fixed income portfolio with a focus on capital preservation. It seeks to provide returns to its shareholders through regular quarterly dividends and through capital appreciation. It invests in Agency and non-Agency mortgage-backed securities (MBS). MBS consists of residential MBS (RMBS), commercial MBS (CMBS) and CMBS interest-only securities. Agency MBS have a guaranty of principal payment by an agency of the United States Government or a government-sponsored entity (GSE), such as Fannie Mae and Freddie Mac.

About Ares Commercial Real Estate Corporation

Ares Commercial Real Estate Corporation is a specialty finance company. The Company is primarily engaged in originating and investing in commercial real estate (CRE) loans and related investments. The Company operates through principal lending segment. Its target investments include senior mortgage loans, subordinated debt, preferred equity, mezzanine loans and other CRE investment opportunities, including commercial mortgage-backed securities. These investments are generally held for investment and are secured, directly or indirectly, by office, multifamily, retail, industrial, lodging, senior-living, self-storage and other commercial real estate properties, or by ownership interests therein. Through the Company’s manager, Ares Commercial Real Estate Management LLC, it has investment professionals located across the United States and Europe who directly source loan opportunities for the Company with owners, operators and sponsors of CRE properties.

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