MFA Financial (NYSE: MFA) and PennyMac Mortgage Investment Trust (NYSE:PMT) are both finance companies, but which is the better business? We will compare the two businesses based on the strength of their earnings, dividends, valuation, institutional ownership, profitability, risk and analyst recommendations.

Insider and Institutional Ownership

80.2% of MFA Financial shares are owned by institutional investors. Comparatively, 63.3% of PennyMac Mortgage Investment Trust shares are owned by institutional investors. 0.9% of MFA Financial shares are owned by company insiders. Comparatively, 1.8% of PennyMac Mortgage Investment Trust shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Analyst Ratings

This is a summary of recent recommendations and price targets for MFA Financial and PennyMac Mortgage Investment Trust, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
MFA Financial 0 3 2 0 2.40
PennyMac Mortgage Investment Trust 0 4 2 0 2.33

MFA Financial presently has a consensus target price of $8.50, suggesting a potential upside of 6.38%. PennyMac Mortgage Investment Trust has a consensus target price of $17.00, suggesting a potential upside of 11.70%. Given PennyMac Mortgage Investment Trust’s higher probable upside, analysts plainly believe PennyMac Mortgage Investment Trust is more favorable than MFA Financial.

Profitability

This table compares MFA Financial and PennyMac Mortgage Investment Trust’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
MFA Financial 59.03% 9.43% 2.46%
PennyMac Mortgage Investment Trust 37.97% 8.67% 1.95%

Earnings and Valuation

This table compares MFA Financial and PennyMac Mortgage Investment Trust’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
MFA Financial $566.49 million 5.60 $312.66 million $0.73 10.95
PennyMac Mortgage Investment Trust $272.09 million 3.74 $75.81 million $1.42 10.72

MFA Financial has higher revenue and earnings than PennyMac Mortgage Investment Trust. PennyMac Mortgage Investment Trust is trading at a lower price-to-earnings ratio than MFA Financial, indicating that it is currently the more affordable of the two stocks.

Dividends

MFA Financial pays an annual dividend of $0.80 per share and has a dividend yield of 10.0%. PennyMac Mortgage Investment Trust pays an annual dividend of $1.88 per share and has a dividend yield of 12.4%. MFA Financial pays out 109.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. PennyMac Mortgage Investment Trust pays out 132.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Volatility and Risk

MFA Financial has a beta of 0.68, meaning that its stock price is 32% less volatile than the S&P 500. Comparatively, PennyMac Mortgage Investment Trust has a beta of 0.54, meaning that its stock price is 46% less volatile than the S&P 500.

Summary

MFA Financial beats PennyMac Mortgage Investment Trust on 11 of the 15 factors compared between the two stocks.

About MFA Financial

MFA Financial, Inc. is engaged in the real estate finance business. The Company’s subsidiaries invest in residential mortgage assets, including Non-Agency mortgage-backed securities (MBS), Agency MBS, residential whole loans and credit risk transfer (CRT) securities. The Company’s Non-Agency MBS portfolio primarily consists of Legacy Non-Agency MBS and 3 Year Step-up securities. In addition to Non-Agency MBS investments, the Company invests in re-performing and non-performing residential whole loans through its interests in certain consolidated trusts. The mortgages collateralizing its Agency MBS portfolio are predominantly Hybrids, 15-year fixed-rate mortgages and adjustable-rate mortgages (ARMs).

About PennyMac Mortgage Investment Trust

PennyMac Mortgage Investment Trust is a specialty finance company that invests primarily in residential mortgage loans and mortgage-related assets. The Company conducts all of its operations, and makes all of its investments, through PennyMac Operating Partnership, L.P. (its Operating Partnership) and its subsidiaries. It operates through two segments: correspondent production and investment activities. Its investment activities segment represents the Company’s investments in mortgage-related assets. The correspondent production segment represents the Company’s operations aimed at serving as an intermediary between mortgage lenders and the capital markets by purchasing, pooling and reselling newly originated prime credit quality mortgage loans either directly or in the form of MBS, using the services of PNMAC Capital Management (the Manager or PCM) and PennyMac Loan Services, LLC (PLS), both indirect subsidiaries of PennyMac Financial Services, Inc. (PFSI or PennyMac).

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