Comparing Two Harbors Investments (NYSE:TWO) & NexPoint Real Estate Finance (NYSE:NREF)

NexPoint Real Estate Finance (NYSE:NREF) and Two Harbors Investments (NYSE:TWO) are both small-cap finance companies, but which is the better investment? We will contrast the two companies based on the strength of their dividends, institutional ownership, analyst recommendations, valuation, profitability, earnings and risk.

Dividends

NexPoint Real Estate Finance pays an annual dividend of $2.00 per share and has a dividend yield of 15.6%. Two Harbors Investments pays an annual dividend of $1.36 per share and has a dividend yield of 12.6%. NexPoint Real Estate Finance pays out 69.0% of its earnings in the form of a dividend. Two Harbors Investments pays out -27.8% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Two Harbors Investments has increased its dividend for 1 consecutive years.

Valuation & Earnings

This table compares NexPoint Real Estate Finance and Two Harbors Investments”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
NexPoint Real Estate Finance	$89.95 million	2.53	$110.28 million	$2.90	4.43
Two Harbors Investments	$115.06 million	9.82	-$454.30 million	($4.89)	-2.20

NexPoint Real Estate Finance has higher earnings, but lower revenue than Two Harbors Investments. Two Harbors Investments is trading at a lower price-to-earnings ratio than NexPoint Real Estate Finance, indicating that it is currently the more affordable of the two stocks.

Risk & Volatility

NexPoint Real Estate Finance has a beta of 1.18, indicating that its share price is 18% more volatile than the S&P 500. Comparatively, Two Harbors Investments has a beta of 1.18, indicating that its share price is 18% more volatile than the S&P 500.

Analyst Ratings

This is a summary of current ratings and price targets for NexPoint Real Estate Finance and Two Harbors Investments, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
NexPoint Real Estate Finance	1	3	0	0	1.75
Two Harbors Investments	2	6	0	0	1.75

NexPoint Real Estate Finance currently has a consensus target price of $14.50, suggesting a potential upside of 12.93%. Two Harbors Investments has a consensus target price of $12.88, suggesting a potential upside of 19.71%. Given Two Harbors Investments’ higher probable upside, analysts clearly believe Two Harbors Investments is more favorable than NexPoint Real Estate Finance.

Profitability

This table compares NexPoint Real Estate Finance and Two Harbors Investments’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
NexPoint Real Estate Finance	122.60%	15.63%	1.04%
Two Harbors Investments	-109.90%	12.00%	1.29%

Insider and Institutional Ownership

67.8% of NexPoint Real Estate Finance shares are held by institutional investors. Comparatively, 64.2% of Two Harbors Investments shares are held by institutional investors. 54.0% of NexPoint Real Estate Finance shares are held by insiders. Comparatively, 0.7% of Two Harbors Investments shares are held 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.

Summary

NexPoint Real Estate Finance beats Two Harbors Investments on 8 of the 14 factors compared between the two stocks.

About NexPoint Real Estate Finance

NexPoint Real Estate Finance, Inc. operates as a commercial mortgage real estate investment trust in the United States. It focuses on originating, structuring, and investing in first-lien mortgage loans, mezzanine loans, preferred equity, convertible notes, multifamily properties, and common equity investments, as well as multifamily and single-family rental commercial mortgage-backed securities securitizations, multifamily structured credit risk notes, and mortgage-backed securities or target assets. The company has elected to be taxed as a real estate investment trust (REIT) and would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. NexPoint Real Estate Finance, Inc. was incorporated in 2019 and is based in Dallas, Texas.

About Two Harbors Investments

Two Harbors Investment Corp. invests in, finances, and manages mortgage servicing rights (MSRs), agency residential mortgage-backed securities (RMBS), and other financial assets through RoundPoint in the United States. The company target assets include agency RMBS collateralized by fixed rate mortgage loans, adjustable rate mortgage loans, hybrid mortgage loans, or derivatives; and other assets, such as financial and mortgage-related assets, including non-agency securities and non-hedging transactions. It qualifies as a REIT for federal income tax purposes. As a REIT, the company must distribute at least 90% of annual taxable income to its stockholders. Two Harbors Investment Corp. was incorporated in 2009 and is headquartered in St. Louis Park, Minnesota.