Dynex Capital (NYSE: DX) and Invesco Mortgage Capital (NYSE:IVR) are both small-cap finance companies, but which is the better investment? We will contrast the two companies based on the strength of their valuation, analyst recommendations, dividends, risk, profitability, institutional ownership and earnings.

Analyst Recommendations

This is a summary of current ratings and recommmendations for Dynex Capital and Invesco Mortgage Capital, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Dynex Capital 0 3 0 0 2.00
Invesco Mortgage Capital 0 2 3 0 2.60

Dynex Capital currently has a consensus price target of $7.13, suggesting a potential upside of 0.07%. Invesco Mortgage Capital has a consensus price target of $17.44, suggesting a potential upside of 2.57%. Given Invesco Mortgage Capital’s stronger consensus rating and higher possible upside, analysts plainly believe Invesco Mortgage Capital is more favorable than Dynex Capital.

Earnings and Valuation

This table compares Dynex Capital and Invesco Mortgage Capital’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Dynex Capital $105.39 million 3.33 $75.82 million $1.54 4.62
Invesco Mortgage Capital $609.31 million 3.11 $484.39 million $4.34 3.92

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

Risk & Volatility

Dynex Capital has a beta of 0.85, meaning that its stock price is 15% less volatile than the S&P 500. Comparatively, Invesco Mortgage Capital has a beta of 0.81, meaning that its stock price is 19% less volatile than the S&P 500.

Dividends

Dynex Capital pays an annual dividend of $0.72 per share and has a dividend yield of 10.1%. Invesco Mortgage Capital pays an annual dividend of $1.60 per share and has a dividend yield of 9.4%. Dynex Capital pays out 46.8% of its earnings in the form of a dividend. Invesco Mortgage Capital pays out 36.9% 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.

Institutional & Insider Ownership

44.2% of Dynex Capital shares are held by institutional investors. Comparatively, 64.9% of Invesco Mortgage Capital shares are held by institutional investors. 7.1% of Dynex Capital shares are held by company insiders. Comparatively, 0.3% of Invesco Mortgage Capital shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Profitability

This table compares Dynex Capital and Invesco Mortgage Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Dynex Capital 93.54% 11.04% 1.25%
Invesco Mortgage Capital 71.92% 8.97% 1.11%

Summary

Invesco Mortgage Capital beats Dynex Capital 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 Invesco Mortgage Capital

Invesco Mortgage Capital Inc. is a holding company, which conducts its businesses through IAS Operating Partnership LP (the Operating Partnership) and subsidiaries. The Company’s objective is to provide risk-adjusted returns to its investors through dividends and through capital appreciation. It invests in residential mortgage-backed securities that are guaranteed by the United States Government agency, such as the Government National Mortgage Association or a federally chartered corporation, such as the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation (collectively Agency RMBS); RMBS that are not guaranteed by the United States Government agency; Credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises; commercial mortgage-backed securities; residential and commercial mortgage loans, and other real estate-related financing arrangements. It is externally managed and advised by Invesco Advisers, Inc.

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