Analyzing Goldman Sachs BDC (GSBD) and Arlington Asset Investment (AI)

Goldman Sachs BDC (NYSE: GSBD) and Arlington Asset Investment (NYSE:AI) are both small-cap finance companies, but which is the better business? We will compare the two companies based on the strength of their profitability, risk, institutional ownership, earnings, valuation, dividends and analyst recommendations.

Dividends

Goldman Sachs BDC pays an annual dividend of $1.80 per share and has a dividend yield of 8.1%. Arlington Asset Investment pays an annual dividend of $2.20 per share and has a dividend yield of 18.9%. Goldman Sachs BDC pays out 160.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Arlington Asset Investment pays out -150.7% of its earnings in the form of a dividend. Goldman Sachs BDC has increased its dividend for 2 consecutive years. Arlington Asset Investment is clearly the better dividend stock, given its higher yield and lower payout ratio.

Institutional & Insider Ownership

36.5% of Goldman Sachs BDC shares are owned by institutional investors. Comparatively, 37.8% of Arlington Asset Investment shares are owned by institutional investors. 0.3% of Goldman Sachs BDC shares are owned by insiders. Comparatively, 5.9% of Arlington Asset Investment shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Profitability

This table compares Goldman Sachs BDC and Arlington Asset Investment’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Goldman Sachs BDC 32.19% 11.34% 6.65%
Arlington Asset Investment -27.20% -8.36% -0.72%

Earnings & Valuation

This table compares Goldman Sachs BDC and Arlington Asset Investment’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Goldman Sachs BDC $125.11 million 7.17 $40.65 million $1.12 19.96
Arlington Asset Investment $105.34 million 3.12 -$41.34 million ($1.46) -7.99

Goldman Sachs BDC has higher revenue and earnings than Arlington Asset Investment. Arlington Asset Investment is trading at a lower price-to-earnings ratio than Goldman Sachs BDC, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a breakdown of recent ratings and target prices for Goldman Sachs BDC and Arlington Asset Investment, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Goldman Sachs BDC 0 3 3 0 2.50
Arlington Asset Investment 0 1 2 0 2.67

Goldman Sachs BDC currently has a consensus price target of $22.60, indicating a potential upside of 1.12%. Arlington Asset Investment has a consensus price target of $13.75, indicating a potential upside of 17.82%. Given Arlington Asset Investment’s stronger consensus rating and higher probable upside, analysts plainly believe Arlington Asset Investment is more favorable than Goldman Sachs BDC.

Risk & Volatility

Goldman Sachs BDC has a beta of 0.81, suggesting that its share price is 19% less volatile than the S&P 500. Comparatively, Arlington Asset Investment has a beta of 1.06, suggesting that its share price is 6% more volatile than the S&P 500.

Summary

Goldman Sachs BDC beats Arlington Asset Investment on 10 of the 17 factors compared between the two stocks.

About Goldman Sachs BDC

Goldman Sachs BDC, Inc. is a closed-end management investment company. The Company is a specialty finance company, which is focused on lending to middle-market companies. The Company’s investment objective is to generate current income and, to a lesser extent, capital appreciation primarily through direct originations of secured debt, including first lien, including first lien, unitranche, including last out portions of such loans, and second lien debt, and unsecured debt, including mezzanine debt, as well as through select equity investments. The Company invests primarily in the United States middle-market companies. The Company invests in illiquid securities, including debt and equity investments, of middle-market companies. As of December 31, 2016, its portfolio included first lien/senior secured debt, first lien/last-out unitranche, second lien/senior secured debt, unsecured debt, preferred stock, common stock, and investment funds and vehicles.

About Arlington Asset Investment

Arlington Asset Investment Corp. is an investment company. The Company focuses on acquiring and holding a levered portfolio of residential mortgage-backed securities (MBS), consisting of agency MBS and private-label MBS. Agency MBS include residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by a United States Government agency or government-sponsored enterprise (GSE), such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Private-label MBS, or non-agency MBS, include residential MBS that are not guaranteed by a GSE or the United States Government. The Company funds its investments primarily through short-term financing arrangements. The Company purchases agency MBS either in initial offerings or in the secondary market through broker-dealers or similar entities. It may invest in agency MBS collateralized by adjustable-rate mortgage loans (ARMs) or hybrid ARMs.

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