Capstead Mortgage Corporation (NYSE: CMO) and Annaly Capital Management (NYSE:NLY) are both finance companies, but which is the better investment? We will contrast the two businesses based on the strength of their profitability, earnings, valuation, risk, institutional ownership, dividends and analyst recommendations.

Dividends

Capstead Mortgage Corporation pays an annual dividend of $0.84 per share and has a dividend yield of 8.6%. Annaly Capital Management pays an annual dividend of $1.20 per share and has a dividend yield of 9.7%. Capstead Mortgage Corporation pays out 137.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Annaly Capital Management pays out 41.5% of its earnings in the form of a dividend. Annaly Capital Management has raised its dividend for 3 consecutive years. Annaly Capital Management is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Insider and Institutional Ownership

71.2% of Capstead Mortgage Corporation shares are owned by institutional investors. Comparatively, 53.0% of Annaly Capital Management shares are owned by institutional investors. 1.7% of Capstead Mortgage Corporation shares are owned by insiders. Comparatively, 0.4% of Annaly Capital Management shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Analyst Recommendations

This is a summary of recent ratings for Capstead Mortgage Corporation and Annaly Capital Management, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Capstead Mortgage Corporation 0 2 0 0 2.00
Annaly Capital Management 1 3 2 0 2.17

Capstead Mortgage Corporation presently has a consensus target price of $11.00, suggesting a potential upside of 13.05%. Annaly Capital Management has a consensus target price of $11.25, suggesting a potential downside of 8.83%. Given Capstead Mortgage Corporation’s higher probable upside, equities analysts clearly believe Capstead Mortgage Corporation is more favorable than Annaly Capital Management.

Valuation and Earnings

This table compares Capstead Mortgage Corporation and Annaly Capital Management’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Capstead Mortgage Corporation $88.27 million 10.59 $58.62 million $0.61 15.95
Annaly Capital Management $3.30 billion 4.07 $3.14 billion $2.89 4.27

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

Risk and Volatility

Capstead Mortgage Corporation has a beta of 0.36, suggesting that its stock price is 64% less volatile than the S&P 500. Comparatively, Annaly Capital Management has a beta of 0.28, suggesting that its stock price is 72% less volatile than the S&P 500.

Profitability

This table compares Capstead Mortgage Corporation and Annaly Capital Management’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Capstead Mortgage Corporation 35.05% 7.31% 0.56%
Annaly Capital Management 121.84% 11.33% 1.52%

Summary

Annaly Capital Management beats Capstead Mortgage Corporation on 11 of the 17 factors compared between the two stocks.

Capstead Mortgage Corporation 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.

Annaly Capital Management Company Profile

Annaly Capital Management, Inc. is a mortgage real estate investment trust (REIT). The Company owns a portfolio of real estate related investments. Its investment groups primarily consist of Agency, which invests primarily in various types of Agency mortgage-backed securities and related derivatives to hedge these investments; Residential credit, which invests primarily in non-Agency mortgage-backed assets within securitized products and residential mortgage loan markets; Commercial real estate, which originates and invests in commercial mortgage loans, securities, and other commercial real estate investments, and Middle market, which provides customized debt financing to middle-market businesses. Its business operations consist of Annaly Commercial Real Estate Group, Inc., which is its subsidiary that specializes in originating or acquiring, financing and managing commercial loans and other commercial real estate debt; Annaly Middle Market Lending LLC, and RCap Securities, Inc.

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