Hatteras Financial Corp. (NYSE: HTS) and Apollo Commercial Real Estate Finance (NYSE:ARI) are both financials companies, but which is the better investment? We will compare the two companies based on the strength of their dividends, risk, institutional ownership, analyst recommendations, earnings, valuation and profitability.

Institutional & Insider Ownership

64.8% of Apollo Commercial Real Estate Finance shares are owned by institutional investors. 0.6% of Apollo Commercial Real Estate Finance shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Dividends

Hatteras Financial Corp. pays an annual dividend of $1.80 per share and has a dividend yield of 11.0%. Apollo Commercial Real Estate Finance pays an annual dividend of $1.84 per share and has a dividend yield of 10.1%. Hatteras Financial Corp. pays out 580.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. 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. Hatteras Financial Corp. has raised its dividend for 2 consecutive years. Hatteras Financial Corp. is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Earnings and Valuation

This table compares Hatteras Financial Corp. and Apollo Commercial Real Estate Finance’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Hatteras Financial Corp. N/A N/A N/A $0.31 52.55
Apollo Commercial Real Estate Finance $221.93 million 8.65 $223.53 million $2.12 8.58

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

Risk and Volatility

Hatteras Financial Corp. has a beta of 0.3, indicating that its share price is 70% less volatile than the S&P 500. Comparatively, Apollo Commercial Real Estate Finance has a beta of 0.64, indicating that its share price is 36% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current ratings and recommmendations for Hatteras Financial Corp. and Apollo Commercial Real Estate Finance, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Hatteras Financial Corp. 0 0 0 0 N/A
Apollo Commercial Real Estate Finance 0 3 1 0 2.25

Apollo Commercial Real Estate Finance has a consensus price target of $18.50, suggesting a potential upside of 1.65%. Given Apollo Commercial Real Estate Finance’s higher possible upside, analysts plainly believe Apollo Commercial Real Estate Finance is more favorable than Hatteras Financial Corp..

Profitability

This table compares Hatteras Financial Corp. and Apollo Commercial Real Estate Finance’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Hatteras Financial Corp. N/A -16.93% -1.89%
Apollo Commercial Real Estate Finance 93.54% 9.59% 5.20%

Summary

Apollo Commercial Real Estate Finance beats Hatteras Financial Corp. on 11 of the 13 factors compared between the two stocks.

About Hatteras Financial Corp.

Hatteras Financial Corp. is an externally managed mortgage real estate investment trust (REIT) that invests in single-family residential mortgage real estate assets, such as mortgage-backed security (MBS), mortgage servicing right (MSR), residential mortgage loans and other financial assets. MBS are pass-through securities consisting of a pool of mortgage loans. Its primary business is owning and managing agency securities, with a primary focus on adjustable-rate mortgage securities. Its primary investment assets include Agency MBS; other agency issued securities, such as credit-risk transfer bonds; MSR; non-agency securities; residential mortgage loans, and other real estate related assets as permitted by its investment guidelines and REIT requirements. Its business operations consist of the Hatteras Financial Corp., Onslow Bay Financial LLC, First Winston Securities, Inc. and Wind River TRS LLC. It is externally managed and advised by its manager, Atlantic Capital Advisors LLC.

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.

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