Invesco Mortgage Capital (NYSE: IVR) and Starwood Property Trust (NYSE:STWD) are both mid-cap finance companies, but which is the better investment? We will compare the two businesses based on the strength of their profitability, earnings, institutional ownership, dividends, analyst recommendations, valuation and risk.

Dividends

Invesco Mortgage Capital pays an annual dividend of $1.64 per share and has a dividend yield of 9.0%. Starwood Property Trust pays an annual dividend of $1.92 per share and has a dividend yield of 8.9%. Invesco Mortgage Capital pays out 44.1% of its earnings in the form of a dividend. Starwood Property Trust pays out 116.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Invesco Mortgage Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.

Earnings and Valuation

This table compares Invesco Mortgage Capital and Starwood Property Trust’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Invesco Mortgage Capital $456.86 million 4.45 $254.41 million $3.72 4.90
Starwood Property Trust $784.67 million 7.21 $365.18 million $1.65 13.14

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

Analyst Ratings

This is a summary of current recommendations and price targets for Invesco Mortgage Capital and Starwood Property Trust, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Invesco Mortgage Capital 0 2 2 0 2.50
Starwood Property Trust 0 1 2 0 2.67

Invesco Mortgage Capital currently has a consensus target price of $18.13, indicating a potential downside of 0.47%. Starwood Property Trust has a consensus target price of $24.00, indicating a potential upside of 10.70%. Given Starwood Property Trust’s stronger consensus rating and higher possible upside, analysts clearly believe Starwood Property Trust is more favorable than Invesco Mortgage Capital.

Profitability

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

Net Margins Return on Equity Return on Assets
Invesco Mortgage Capital 66.86% 9.06% 1.09%
Starwood Property Trust 52.28% 11.88% 0.79%

Risk & Volatility

Invesco Mortgage Capital has a beta of 0.86, indicating that its share price is 14% less volatile than the S&P 500. Comparatively, Starwood Property Trust has a beta of 0.51, indicating that its share price is 49% less volatile than the S&P 500.

Insider and Institutional Ownership

63.2% of Invesco Mortgage Capital shares are held by institutional investors. Comparatively, 67.5% of Starwood Property Trust shares are held by institutional investors. 0.3% of Invesco Mortgage Capital shares are held by company insiders. Comparatively, 2.4% of Starwood Property Trust shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Summary

Starwood Property Trust beats Invesco Mortgage Capital on 8 of the 15 factors compared between the two stocks.

Invesco Mortgage Capital Company Profile

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.

Starwood Property Trust Company Profile

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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