Ellington Residential Mortgage REIT (NYSE: EARN) and STARWOOD PROPERTY TRUST, INC. (NYSE:STWD) are both finance companies, but which is the better investment? We will contrast the two businesses based on the strength of their risk, analyst recommendations, profitability, dividends, valuation, institutional ownership and earnings.

Insider and Institutional Ownership

66.3% of Ellington Residential Mortgage REIT shares are held by institutional investors. Comparatively, 68.8% of STARWOOD PROPERTY TRUST, INC. shares are held by institutional investors. 2.7% of Ellington Residential Mortgage REIT shares are held by insiders. Comparatively, 2.4% of STARWOOD PROPERTY TRUST, INC. shares are held by 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.

Dividends

Ellington Residential Mortgage REIT pays an annual dividend of $1.60 per share. STARWOOD PROPERTY TRUST, INC. pays an annual dividend of $1.92 per share and has a dividend yield of 8.9%. Ellington Residential Mortgage REIT pays out 121.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. STARWOOD PROPERTY TRUST, INC. pays out 109.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. STARWOOD PROPERTY TRUST, INC. is clearly the better dividend stock, given its higher yield and lower payout ratio.

Volatility and Risk

Ellington Residential Mortgage REIT has a beta of 0.61, meaning that its share price is 39% less volatile than the S&P 500. Comparatively, STARWOOD PROPERTY TRUST, INC. has a beta of 0.52, meaning that its share price is 48% less volatile than the S&P 500.

Profitability

This table compares Ellington Residential Mortgage REIT and STARWOOD PROPERTY TRUST, INC.’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Ellington Residential Mortgage REIT 44.93% 12.25% 1.18%
STARWOOD PROPERTY TRUST, INC. 55.89% 11.39% 0.69%

Analyst Recommendations

This is a summary of recent recommendations and price targets for Ellington Residential Mortgage REIT and STARWOOD PROPERTY TRUST, INC., as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Ellington Residential Mortgage REIT 0 2 0 0 2.00
STARWOOD PROPERTY TRUST, INC. 0 1 2 0 2.67

Ellington Residential Mortgage REIT presently has a consensus target price of $14.00, indicating a potential upside of Infinity. STARWOOD PROPERTY TRUST, INC. has a consensus target price of $24.00, indicating a potential upside of 10.75%. Given Ellington Residential Mortgage REIT’s higher probable upside, analysts clearly believe Ellington Residential Mortgage REIT is more favorable than STARWOOD PROPERTY TRUST, INC..

Earnings and Valuation

This table compares Ellington Residential Mortgage REIT and STARWOOD PROPERTY TRUST, INC.’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
Ellington Residential Mortgage REIT $24.22 0.00 $11.90 $1.32 N/A
STARWOOD PROPERTY TRUST, INC. $784.67 7.20 $365.18 $1.76 12.31

STARWOOD PROPERTY TRUST, INC. has higher revenue and earnings than Ellington Residential Mortgage REIT. Ellington Residential Mortgage REIT is trading at a lower price-to-earnings ratio than STARWOOD PROPERTY TRUST, INC., indicating that it is currently the more affordable of the two stocks.

Summary

STARWOOD PROPERTY TRUST, INC. beats Ellington Residential Mortgage REIT on 10 of the 15 factors compared between the two stocks.

About Ellington Residential Mortgage REIT

Ellington Residential Mortgage REIT is a real estate investment trust. The Company conducts its business through its subsidiaries, EARN OP GP LLC and Ellington Residential Mortgage LP (the Operating Partnership). It specializes in acquiring, investing in and managing residential mortgage- and real estate-related assets. It constructs and managing a portfolio consisting of residential mortgage-backed securities (RMBS) for which the principal and interest payments are guaranteed by the United States Government agency or the United States Government-sponsored entity (Agency RMBS) and, to a lesser extent, RMBS backed by prime jumbo, Alternative A-paper manufactured housing, and subprime residential mortgage loans (non-Agency RMBS). Its Agency RMBS include residential mortgage pass-through certificates, collateralized mortgage obligations (CMOs) and to-be-announced mortgage pass-through certificates (TBAs). Its non-agency RMBS include investment grade and non-investment grade classes.

About STARWOOD PROPERTY TRUST, INC.

Starwood Property Trust, Inc. is a real estate investment trust. The Company operates through three business segments: Real estate lending (the Lending Segment), which engages primarily in originating, acquiring, financing and managing commercial first mortgages, subordinated mortgages, mezzanine loans, preferred equity, commercial mortgage-backed securities (CMBS), residential mortgage-backed securities, and other real estate and real estate-related debt investments; Real estate investing and servicing (the Investing and Servicing Segment), which includes a servicing business in the United States that manages and works out problem assets; an investment business that selectively acquires and manages unrated, investment grade and non-investment grade rated CMBS, and a mortgage loan business, and Real estate property (the Property Segment), which engages primarily in acquiring and managing equity interests in stabilized commercial real estate properties.

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