Critical Analysis: Chimera Investment (NYSE:CIM) versus ARMOUR Residential REIT (NYSE:ARR)

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

Analyst Recommendations

This is a summary of current ratings and price targets for ARMOUR Residential REIT and Chimera Investment, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
ARMOUR Residential REIT	2	4	2	0	2.00
Chimera Investment	1	3	1	0	2.00

ARMOUR Residential REIT currently has a consensus price target of $17.25, indicating a potential downside of 8.66%. Chimera Investment has a consensus price target of $14.50, indicating a potential upside of 10.91%. Given Chimera Investment’s higher possible upside, analysts clearly believe Chimera Investment is more favorable than ARMOUR Residential REIT.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
ARMOUR Residential REIT	9.01%	15.37%	1.63%
Chimera Investment	4.27%	7.36%	1.36%

Dividends

ARMOUR Residential REIT pays an annual dividend of $2.88 per share and has a dividend yield of 15.3%. Chimera Investment pays an annual dividend of $1.48 per share and has a dividend yield of 11.3%. 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. Chimera Investment pays out -370.0% of its earnings in the form of a dividend. Chimera Investment has increased its dividend for 1 consecutive years.

Insider and Institutional Ownership

54.2% of ARMOUR Residential REIT shares are held by institutional investors. Comparatively, 48.4% of Chimera Investment shares are held by institutional investors. 0.4% of ARMOUR Residential REIT shares are held by company insiders. Comparatively, 1.5% of Chimera Investment shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Earnings & Valuation

This table compares ARMOUR Residential REIT and Chimera Investment”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
ARMOUR Residential REIT	$550.95 million	3.84	-$14.39 million	$0.04	472.13
Chimera Investment	$760.95 million	1.43	$176.07 million	($0.40)	-32.69

Chimera Investment has higher revenue and earnings than ARMOUR Residential REIT. Chimera Investment 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.

Volatility & Risk

ARMOUR Residential REIT has a beta of 1.44, suggesting that its stock price is 44% more volatile than the S&P 500. Comparatively, Chimera Investment has a beta of 1.83, suggesting that its stock price is 83% more volatile than the S&P 500.

Summary

ARMOUR Residential REIT beats Chimera Investment on 9 of the 16 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 Chimera Investment

Chimera Investment Corporation operates as a real estate investment trust (REIT) in the United States. The company, through its subsidiaries, invests in a portfolio of mortgage assets, including residential mortgage loans, agency residential mortgage-backed securities, non-agency residential mortgage-backed securities, agency mortgage-backed securities secured by pools of commercial mortgage loans, business purpose and investor loans, and other real estate related securities. It invests in investment grade, non-investment grade, and non-rated classes. The company qualifies as a real estate investment trust (REIT) for federal income tax purposes. As a REIT, it intends to distribute at least 90% of its taxable income as dividends to shareholders. Chimera Investment Corporation was incorporated in 2007 and is headquartered in New York, New York.