Arlington Asset Investment (NYSE: AI) and Gamco Investors (NYSE:GBL) are both small-cap financials companies, but which is the better stock? We will compare the two businesses based on the strength of their risk, profitability, institutional ownership, dividends, earnings, analyst recommendations and valuation.

Institutional and Insider Ownership

37.8% of Arlington Asset Investment shares are owned by institutional investors. Comparatively, 25.7% of Gamco Investors shares are owned by institutional investors. 5.9% of Arlington Asset Investment shares are owned by company insiders. Comparatively, 80.0% of Gamco Investors shares are owned 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.

Dividends

Arlington Asset Investment pays an annual dividend of $2.20 per share and has a dividend yield of 18.6%. Gamco Investors pays an annual dividend of $0.08 per share and has a dividend yield of 0.3%. Arlington Asset Investment pays out -150.7% of its earnings in the form of a dividend. Gamco Investors pays out 2.5% 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. Gamco Investors has increased its dividend for 6 consecutive years. Arlington Asset Investment is clearly the better dividend stock, given its higher yield and lower payout ratio.

Earnings & Valuation

This table compares Arlington Asset Investment and Gamco Investors’ top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Arlington Asset Investment $105.34 million 3.15 -$41.34 million ($1.46) -8.08
Gamco Investors $353.00 million 2.48 $117.12 million $3.20 9.38

Gamco Investors has higher revenue and earnings than Arlington Asset Investment. Arlington Asset Investment is trading at a lower price-to-earnings ratio than Gamco Investors, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a summary of current ratings and recommmendations for Arlington Asset Investment and Gamco Investors, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Arlington Asset Investment 0 1 2 0 2.67
Gamco Investors 0 0 0 0 N/A

Arlington Asset Investment currently has a consensus price target of $13.75, suggesting a potential upside of 16.53%. Given Arlington Asset Investment’s higher possible upside, research analysts clearly believe Arlington Asset Investment is more favorable than Gamco Investors.

Profitability

This table compares Arlington Asset Investment and Gamco Investors’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Arlington Asset Investment -27.20% -8.36% -0.72%
Gamco Investors 26.81% -63.12% 45.24%

Volatility & Risk

Arlington Asset Investment has a beta of 1.06, meaning that its stock price is 6% more volatile than the S&P 500. Comparatively, Gamco Investors has a beta of 1.05, meaning that its stock price is 5% more volatile than the S&P 500.

About Arlington Asset Investment

Arlington Asset Investment Corp. is an investment company. The Company focuses on acquiring and holding a levered portfolio of residential mortgage-backed securities (MBS), consisting of agency MBS and private-label MBS. Agency MBS include residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by a United States Government agency or government-sponsored enterprise (GSE), such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Private-label MBS, or non-agency MBS, include residential MBS that are not guaranteed by a GSE or the United States Government. The Company funds its investments primarily through short-term financing arrangements. The Company purchases agency MBS either in initial offerings or in the secondary market through broker-dealers or similar entities. It may invest in agency MBS collateralized by adjustable-rate mortgage loans (ARMs) or hybrid ARMs.

About Gamco Investors

GAMCO Investors, Inc. is a holding company. The Company is a provider of investment advisory services to open and closed-end funds, institutional and private wealth management investors principally in the United States. The Company operates through the investment advisory and asset management business segment. It manages assets on a discretionary basis and invests in securities through various investment styles. Its assets under management are organized into three groups: Institutional and Private Wealth Management; Open and Closed-End Funds, and the GAMCO International SICAV (SICAV). The Company provides advisory services to a range of investors, including corporate retirement plans, foundations, endowments and private wealth clients, and also serves as sub-advisor to third-party investment funds, including registered investment companies. As of December 31, 2016, it had provided advisory services to 21 open-end funds, 15 closed-end funds and one exchange traded managed fund.

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