PennyMac Mortgage Investment Trust (NYSE: PMT) and Orchid Island Capital (NYSE:ORC) are both small-cap finance companies, but which is the superior investment? We will contrast the two businesses based on the strength of their dividends, risk, analyst recommendations, earnings, profitability, institutional ownership and valuation.

Profitability

This table compares PennyMac Mortgage Investment Trust and Orchid Island Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
PennyMac Mortgage Investment Trust 37.97% 8.67% 1.95%
Orchid Island Capital N/A -3.33% -0.35%

Volatility & Risk

PennyMac Mortgage Investment Trust has a beta of 0.51, suggesting that its share price is 49% less volatile than the S&P 500. Comparatively, Orchid Island Capital has a beta of 0.5, suggesting that its share price is 50% less volatile than the S&P 500.

Dividends

PennyMac Mortgage Investment Trust pays an annual dividend of $1.88 per share and has a dividend yield of 10.8%. Orchid Island Capital pays an annual dividend of $1.68 per share and has a dividend yield of 17.2%. PennyMac Mortgage Investment Trust pays out 109.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Orchid Island Capital pays out -2,799.5% of its earnings in the form of a dividend. Orchid Island Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.

Valuation & Earnings

This table compares PennyMac Mortgage Investment Trust and Orchid Island Capital’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
PennyMac Mortgage Investment Trust $318.72 million 3.64 $114.30 million $1.71 10.16
Orchid Island Capital $2.97 million 149.18 -$2.72 million ($0.06) -162.97

PennyMac Mortgage Investment Trust has higher revenue and earnings than Orchid Island Capital. Orchid Island Capital is trading at a lower price-to-earnings ratio than PennyMac Mortgage Investment Trust, indicating that it is currently the more affordable of the two stocks.

Insider & Institutional Ownership

62.5% of PennyMac Mortgage Investment Trust shares are held by institutional investors. Comparatively, 23.6% of Orchid Island Capital shares are held by institutional investors. 1.8% of PennyMac Mortgage Investment Trust shares are held by insiders. Comparatively, 0.9% of Orchid Island Capital shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Analyst Ratings

This is a breakdown of recent recommendations for PennyMac Mortgage Investment Trust and Orchid Island Capital, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
PennyMac Mortgage Investment Trust 0 4 3 0 2.43
Orchid Island Capital 0 1 0 0 2.00

PennyMac Mortgage Investment Trust currently has a consensus target price of $16.95, indicating a potential downside of 2.42%. Given PennyMac Mortgage Investment Trust’s stronger consensus rating and higher possible upside, equities research analysts plainly believe PennyMac Mortgage Investment Trust is more favorable than Orchid Island Capital.

Summary

PennyMac Mortgage Investment Trust beats Orchid Island Capital on 12 of the 15 factors compared between the two stocks.

PennyMac Mortgage Investment Trust Company Profile

PennyMac Mortgage Investment Trust is a specialty finance company that invests primarily in residential mortgage loans and mortgage-related assets. The Company conducts all of its operations, and makes all of its investments, through PennyMac Operating Partnership, L.P. (its Operating Partnership) and its subsidiaries. It operates through two segments: correspondent production and investment activities. Its investment activities segment represents the Company’s investments in mortgage-related assets. The correspondent production segment represents the Company’s operations aimed at serving as an intermediary between mortgage lenders and the capital markets by purchasing, pooling and reselling newly originated prime credit quality mortgage loans either directly or in the form of MBS, using the services of PNMAC Capital Management (the Manager or PCM) and PennyMac Loan Services, LLC (PLS), both indirect subsidiaries of PennyMac Financial Services, Inc. (PFSI or PennyMac).

Orchid Island Capital Company Profile

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.

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