Contrasting Ellington Financial (NYSE:EFC) & Two Harbors Investments (NYSE:TWO)

Ellington Financial (NYSE:EFC) and Two Harbors Investments (NYSE:TWO) are both small-cap finance companies, but which is the better stock? We will contrast the two businesses based on the strength of their earnings, profitability, risk, analyst recommendations, valuation, institutional ownership and dividends.

Profitability

This table compares Ellington Financial and Two Harbors Investments’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Ellington Financial	89.52%	13.56%	1.07%
Two Harbors Investments	-44.10%	11.92%	1.32%

Volatility and Risk

Ellington Financial has a beta of 1, meaning that its share price has a similar volatility profile to the S&P 500.Comparatively, Two Harbors Investments has a beta of 1.28, meaning that its share price is 28% more volatile than the S&P 500.

Dividends

Ellington Financial pays an annual dividend of $1.56 per share and has a dividend yield of 11.7%. Two Harbors Investments pays an annual dividend of $1.36 per share and has a dividend yield of 14.1%. Ellington Financial pays out 125.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Two Harbors Investments pays out -54.4% of its earnings in the form of a dividend. Two Harbors Investments has increased its dividend for 1 consecutive years. Two Harbors Investments is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Earnings & Valuation

This table compares Ellington Financial and Two Harbors Investments”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Ellington Financial	$285.59 million	4.65	$145.86 million	$1.24	10.71
Two Harbors Investments	$394.99 million	2.54	$298.17 million	($2.50)	-3.85

Two Harbors Investments has higher revenue and earnings than Ellington Financial. Two Harbors Investments is trading at a lower price-to-earnings ratio than Ellington Financial, indicating that it is currently the more affordable of the two stocks.

Institutional & Insider Ownership

55.6% of Ellington Financial shares are held by institutional investors. Comparatively, 64.2% of Two Harbors Investments shares are held by institutional investors. 4.1% of Ellington Financial shares are held by company insiders. Comparatively, 0.7% of Two Harbors Investments shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Analyst Ratings

This is a summary of current ratings for Ellington Financial and Two Harbors Investments, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Ellington Financial	0	3	5	0	2.63
Two Harbors Investments	1	5	3	0	2.22

Ellington Financial presently has a consensus price target of $14.46, indicating a potential upside of 8.83%. Two Harbors Investments has a consensus price target of $12.36, indicating a potential upside of 28.39%. Given Two Harbors Investments’ higher possible upside, analysts clearly believe Two Harbors Investments is more favorable than Ellington Financial.

Summary

Two Harbors Investments beats Ellington Financial on 9 of the 17 factors compared between the two stocks.

About Ellington Financial

Ellington Financial Inc., through its subsidiary, Ellington Financial Operating Partnership LLC, acquires and manages mortgage-related, consumer-related, corporate-related, and other financial assets in the United States. The company acquires and manages residential mortgage-backed securities (RMBS) backed by prime jumbo, Alt-A, manufactured housing, and subprime mortgage; RMBS for which the principal and interest payments are guaranteed by the U.S. government agency or the U.S. government-sponsored entity; residential mortgage loans; commercial mortgage-backed securities; and commercial mortgage loans and other commercial real estate debt. It also provides collateralized loan obligations; mortgage-related and non-mortgage-related derivatives; corporate debt and equity securities; corporate loans; and other strategic investments; and consumer loans and asset-backed securities backed by consumer and commercial assets. The company qualifies as a real estate investment trust (REIT) for federal income tax purposes. As a REIT, it intends to distribute at least 90% of its taxable income as dividends to shareholders. Ellington Financial LLC was incorporated in 2007 and is headquartered in Old Greenwich, Connecticut.

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.