Apollo Commercial Real Estate Finance (NYSE: ARI) and Redwood Trust (NYSE:RWT) are both small-cap finance companies, but which is the better business? We will contrast the two companies based on the strength of their earnings, profitability, analyst recommendations, institutional ownership, dividends, valuation and risk.

Profitability

This table compares Apollo Commercial Real Estate Finance and Redwood Trust’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Apollo Commercial Real Estate Finance 93.54% 9.59% 5.20%
Redwood Trust 46.04% 12.02% 2.50%

Volatility & Risk

Apollo Commercial Real Estate Finance has a beta of 0.64, meaning that its stock price is 36% less volatile than the S&P 500. Comparatively, Redwood Trust has a beta of 0.88, meaning that its stock price is 12% less volatile than the S&P 500.

Insider and Institutional Ownership

64.9% of Apollo Commercial Real Estate Finance shares are held by institutional investors. Comparatively, 85.8% of Redwood Trust shares are held by institutional investors. 0.6% of Apollo Commercial Real Estate Finance shares are held by insiders. Comparatively, 2.3% of Redwood Trust 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.

Earnings & Valuation

This table compares Apollo Commercial Real Estate Finance and Redwood Trust’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Apollo Commercial Real Estate Finance $221.93 million 8.54 $223.53 million $2.12 8.48
Redwood Trust $215.70 million 5.67 $134.95 million $1.75 9.06

Apollo Commercial Real Estate Finance has higher revenue and earnings than Redwood Trust. Apollo Commercial Real Estate Finance is trading at a lower price-to-earnings ratio than Redwood Trust, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a summary of current ratings and recommmendations for Apollo Commercial Real Estate Finance and Redwood Trust, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Apollo Commercial Real Estate Finance 0 4 1 0 2.20
Redwood Trust 0 0 0 0 N/A

Apollo Commercial Real Estate Finance currently has a consensus price target of $18.50, indicating a potential upside of 2.95%. Given Apollo Commercial Real Estate Finance’s higher possible upside, equities analysts clearly believe Apollo Commercial Real Estate Finance is more favorable than Redwood Trust.

Dividends

Apollo Commercial Real Estate Finance pays an annual dividend of $1.84 per share and has a dividend yield of 10.2%. Redwood Trust pays an annual dividend of $1.12 per share and has a dividend yield of 7.1%. Apollo Commercial Real Estate Finance pays out 86.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Redwood Trust pays out 64.0% of its earnings in the form of a dividend. Apollo Commercial Real Estate Finance has increased its dividend for 2 consecutive years. Apollo Commercial Real Estate Finance is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Apollo Commercial Real Estate Finance beats Redwood Trust on 11 of the 16 factors compared between the two stocks.

About Apollo Commercial Real Estate Finance

Apollo Commercial Real Estate Finance, Inc. is a real estate investment trust. The Company primarily originates, acquires, invests in and manages performing commercial first mortgage loans, subordinate financings, commercial mortgage-backed securities (CMBS) and other commercial real estate-related debt investments. The Company targets investments that are secured by institutional quality real estate. The Company’s principal business objective is to make investments in its target assets in order to provide attractive risk adjusted returns to its stockholders over the long term, primarily through dividends and secondarily through capital appreciation. The Company is externally managed and advised by ACREFI Management, LLC.

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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