Invesco Mortgage Capital (NYSE: IVR) and MFA Financial (NYSE:MFA) are both financials companies, but which is the better investment? We will compare the two businesses based on the strength of their risk, dividends, profitability, earnings, analyst recommendations, institutional ownership and valuation.

Earnings and Valuation

This table compares Invesco Mortgage Capital and MFA Financial’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Invesco Mortgage Capital $456.86 million 4.32 $254.41 million $3.18 5.56
MFA Financial $566.49 million 5.40 $312.66 million $0.73 10.55

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

Profitability

This table compares Invesco Mortgage Capital and MFA Financial’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Invesco Mortgage Capital 66.86% 9.06% 1.09%
MFA Financial 59.03% 9.33% 2.50%

Volatility and Risk

Invesco Mortgage Capital has a beta of 0.86, indicating that its stock price is 14% less volatile than the S&P 500. Comparatively, MFA Financial has a beta of 0.66, indicating that its stock price is 34% less volatile than the S&P 500.

Dividends

Invesco Mortgage Capital pays an annual dividend of $1.68 per share and has a dividend yield of 9.5%. MFA Financial pays an annual dividend of $0.80 per share and has a dividend yield of 10.4%. Invesco Mortgage Capital pays out 52.8% of its earnings in the form of a dividend. MFA Financial pays out 109.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Analyst Recommendations

This is a summary of recent ratings and price targets for Invesco Mortgage Capital and MFA Financial, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Invesco Mortgage Capital 0 2 2 0 2.50
MFA Financial 0 4 1 0 2.20

Invesco Mortgage Capital presently has a consensus target price of $18.13, suggesting a potential upside of 2.46%. MFA Financial has a consensus target price of $8.75, suggesting a potential upside of 13.64%. Given MFA Financial’s higher probable upside, analysts plainly believe MFA Financial is more favorable than Invesco Mortgage Capital.

Institutional and Insider Ownership

63.2% of Invesco Mortgage Capital shares are held by institutional investors. Comparatively, 80.6% of MFA Financial shares are held by institutional investors. 0.3% of Invesco Mortgage Capital shares are held by company insiders. Comparatively, 0.9% of MFA Financial 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.

Summary

MFA Financial beats Invesco Mortgage Capital on 10 of the 16 factors compared between the two stocks.

About Invesco Mortgage Capital

Invesco Mortgage Capital Inc. is a holding company, which conducts its businesses through IAS Operating Partnership LP (the Operating Partnership) and subsidiaries. The Company’s objective is to provide risk-adjusted returns to its investors through dividends and through capital appreciation. It invests in residential mortgage-backed securities that are guaranteed by the United States Government agency, such as the Government National Mortgage Association or a federally chartered corporation, such as the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation (collectively Agency RMBS); RMBS that are not guaranteed by the United States Government agency; Credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises; commercial mortgage-backed securities; residential and commercial mortgage loans, and other real estate-related financing arrangements. It is externally managed and advised by Invesco Advisers, Inc.

About MFA Financial

MFA Financial, Inc. is engaged in the real estate finance business. The Company’s subsidiaries invest in residential mortgage assets, including Non-Agency mortgage-backed securities (MBS), Agency MBS, residential whole loans and credit risk transfer (CRT) securities. The Company’s Non-Agency MBS portfolio primarily consists of Legacy Non-Agency MBS and 3 Year Step-up securities. In addition to Non-Agency MBS investments, the Company invests in re-performing and non-performing residential whole loans through its interests in certain consolidated trusts. The mortgages collateralizing its Agency MBS portfolio are predominantly Hybrids, 15-year fixed-rate mortgages and adjustable-rate mortgages (ARMs).

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