Critical Analysis: ARMOUR Residential REIT (NYSE:ARR) and Orchid Island Capital (NYSE:ORC)

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

Risk and Volatility

Orchid Island Capital has a beta of 1.57, meaning that its stock price is 57% more volatile than the S&P 500. Comparatively, ARMOUR Residential REIT has a beta of 1.44, meaning that its stock price is 44% more volatile than the S&P 500.

Profitability

This table compares Orchid Island Capital and ARMOUR Residential REIT’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Orchid Island Capital	N/A	6.69%	0.79%
ARMOUR Residential REIT	9.01%	15.37%	1.63%

Valuation & Earnings

This table compares Orchid Island Capital and ARMOUR Residential REIT”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Orchid Island Capital	$241.58 million	4.54	$37.66 million	$0.49	14.74
ARMOUR Residential REIT	$550.95 million	3.38	-$14.39 million	$0.04	416.13

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

Analyst Recommendations

This is a summary of current ratings and target prices for Orchid Island Capital and ARMOUR Residential REIT, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Orchid Island Capital	1	2	0	0	1.67
ARMOUR Residential REIT	1	6	1	0	2.00

ARMOUR Residential REIT has a consensus target price of $16.00, indicating a potential downside of 3.88%. Given ARMOUR Residential REIT’s stronger consensus rating and higher probable upside, analysts clearly believe ARMOUR Residential REIT is more favorable than Orchid Island Capital.

Insider & Institutional Ownership

32.7% of Orchid Island Capital shares are held by institutional investors. Comparatively, 54.2% of ARMOUR Residential REIT shares are held by institutional investors. 0.4% of Orchid Island Capital shares are held by insiders. Comparatively, 0.2% of ARMOUR Residential REIT shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Dividends

Orchid Island Capital pays an annual dividend of $1.44 per share and has a dividend yield of 19.9%. ARMOUR Residential REIT pays an annual dividend of $2.88 per share and has a dividend yield of 17.3%. Orchid Island Capital pays out 293.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. ARMOUR Residential REIT pays out 7,200.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Orchid Island Capital has raised its dividend for 1 consecutive years. Orchid Island Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

ARMOUR Residential REIT beats Orchid Island Capital on 9 of the 17 factors compared between the two stocks.

About Orchid Island Capital

Orchid Island Capital, Inc., a specialty finance company, invests in residential mortgage-backed securities (RMBS) in the United States. The company’s RMBS is backed by single-family residential mortgage loans, referred as Agency RMBS. Its portfolio includes traditional pass-through Agency RMBS, such as mortgage pass through certificates and collateralized mortgage obligations; and structured Agency RMBS comprising interest only securities, inverse interest only securities, and principal only securities. The company has elected to be taxed as a real estate investment trust (REIT) for the United States federal income tax purposes. As a result, it would not be subject to corporate income tax on that portion of its net income that is distributed to stockholders, if it annually distributes dividends equal to at least 90% of its REIT taxable income to its stockholders. Orchid Island Capital, Inc. was incorporated in 2010 and is headquartered in Vero Beach, Florida.

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.