Comparing Two Harbors Investments (NYSE:TWO) & MFA Financial (NYSE:MFA)

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

Risk & Volatility

MFA Financial has a beta of 1.57, indicating that its share price is 57% 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.

Dividends

MFA Financial pays an annual dividend of $1.44 per share and has a dividend yield of 14.3%. Two Harbors Investments pays an annual dividend of $1.36 per share and has a dividend yield of 14.6%. MFA Financial pays out 111.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Two Harbors Investments pays out -27.8% of its earnings in the form of a dividend. MFA Financial has raised its dividend for 1 consecutive years and Two Harbors Investments has raised its dividend for 1 consecutive years. Two Harbors Investments is clearly the better dividend stock, given its higher yield and lower payout ratio.

Valuation & Earnings

This table compares MFA Financial and Two Harbors Investments”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
MFA Financial	$745.06 million	1.38	$176.78 million	$1.29	7.83
Two Harbors Investments	$412.00 million	2.38	-$454.30 million	($4.89)	-1.91

MFA Financial has higher revenue and earnings than Two Harbors Investments. Two Harbors Investments is trading at a lower price-to-earnings ratio than MFA Financial, indicating that it is currently the more affordable of the two stocks.

Insider and Institutional Ownership

65.3% of MFA Financial shares are owned by institutional investors. Comparatively, 64.2% of Two Harbors Investments shares are owned by institutional investors. 0.8% of MFA Financial shares are owned by company insiders. Comparatively, 0.6% of Two Harbors Investments shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Analyst Ratings

This is a summary of current ratings and target prices for MFA Financial and Two Harbors Investments, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
MFA Financial	0	4	2	0	2.33
Two Harbors Investments	2	6	0	0	1.75

MFA Financial presently has a consensus price target of $10.81, indicating a potential upside of 7.00%. Two Harbors Investments has a consensus price target of $12.88, indicating a potential upside of 37.98%. Given Two Harbors Investments’ higher probable upside, analysts plainly believe Two Harbors Investments is more favorable than MFA Financial.

Profitability

This table compares MFA Financial and Two Harbors Investments’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
MFA Financial	23.73%	6.67%	1.01%
Two Harbors Investments	-109.90%	12.00%	1.29%

Summary

MFA Financial beats Two Harbors Investments on 10 of the 16 factors compared between the two stocks.

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.

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.