Head to Head Review: ARMOUR Residential REIT (NYSE:ARR) versus MFA Financial (NYSE:MFA)

ARMOUR Residential REIT (NYSE:ARR) and MFA Financial (NYSE:MFA) are both small-cap finance companies, but which is the superior investment? We will contrast the two businesses based on the strength of their earnings, risk, analyst recommendations, valuation, institutional ownership, dividends and profitability.

Analyst Ratings

This is a breakdown of recent recommendations for ARMOUR Residential REIT and MFA Financial, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
ARMOUR Residential REIT	0	5	1	0	2.17
MFA Financial	0	3	4	0	2.57

ARMOUR Residential REIT presently has a consensus price target of $15.50, suggesting a potential upside of 5.01%. MFA Financial has a consensus price target of $11.75, suggesting a potential upside of 20.76%. Given MFA Financial’s stronger consensus rating and higher possible upside, analysts plainly believe MFA Financial is more favorable than ARMOUR Residential REIT.

Dividends

ARMOUR Residential REIT pays an annual dividend of $2.88 per share and has a dividend yield of 19.5%. MFA Financial pays an annual dividend of $1.44 per share and has a dividend yield of 14.8%. ARMOUR Residential REIT pays out -1,200.0% of its earnings in the form of a dividend. MFA Financial pays out 165.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. MFA Financial has raised its dividend for 1 consecutive years. ARMOUR Residential REIT is clearly the better dividend stock, given its higher yield and lower payout ratio.

Risk and Volatility

ARMOUR Residential REIT has a beta of 1.39, suggesting that its stock price is 39% more volatile than the S&P 500. Comparatively, MFA Financial has a beta of 1.68, suggesting that its stock price is 68% more volatile than the S&P 500.

Profitability

This table compares ARMOUR Residential REIT and MFA Financial’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
ARMOUR Residential REIT	-4.55%	15.89%	1.64%
MFA Financial	17.62%	8.61%	1.39%

Insider and Institutional Ownership

54.2% of ARMOUR Residential REIT shares are held by institutional investors. Comparatively, 65.3% of MFA Financial shares are held by institutional investors. 0.4% of ARMOUR Residential REIT shares are held by company insiders. Comparatively, 0.8% of MFA Financial 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.

Valuation & Earnings

This table compares ARMOUR Residential REIT and MFA Financial”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
ARMOUR Residential REIT	$550.95 million	2.45	-$14.39 million	($0.24)	-61.50
MFA Financial	$254.80 million	3.92	$119.25 million	$0.87	11.18

MFA Financial has lower revenue, but higher earnings than ARMOUR Residential REIT. ARMOUR Residential REIT is trading at a lower price-to-earnings ratio than MFA Financial, indicating that it is currently the more affordable of the two stocks.

Summary

MFA Financial beats ARMOUR Residential REIT on 12 of the 17 factors compared between the two stocks.

About ARMOUR Residential REIT

ARMOUR Residential REIT, Inc. invests in residential mortgage-backed securities (MBS) in the United States. Its securities portfolio primarily consists of the United States Government-sponsored entity's (GSE) and the Government National Mortgage Administration's issued or guaranteed securities backed by fixed rate, hybrid adjustable rate, and adjustable-rate home loans; and unsecured notes and bonds issued by the GSE and the United States treasuries, as well as money market instruments. The company has elected to be taxed as a real estate investment trust. As a result, it would not be subject to corporate income tax on that portion of its net income that is distributed to shareholders. ARMOUR Residential REIT, Inc. was incorporated in 2008 and is based in Vero Beach, Florida.

About MFA Financial

MFA Financial, Inc., together with its subsidiaries, operates as a real estate investment trust in the United States. It invests in residential mortgage securities, including non-agency mortgage-backed securities, agency MBS, and credit risk transfer securities; residential whole loans, including purchased performing loans, purchased credit deteriorated, and non-performing loans; and mortgage servicing rights related assets. The company was incorporated in 1997 and is based in New York, New York.