Select Income REIT (NASDAQ:SIR) and Caretrust REIT (NASDAQ:CTRE) are both small-cap finance companies, but which is the better investment? We will compare the two businesses based on the strength of their earnings, institutional ownership, profitability, analyst recommendations, risk, valuation and dividends.

Insider & Institutional Ownership

50.1% of Select Income REIT shares are held by institutional investors. Comparatively, 90.9% of Caretrust REIT shares are held by institutional investors. 2.1% of Select Income REIT shares are held by insiders. Comparatively, 1.6% of Caretrust REIT shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Dividends

Select Income REIT pays an annual dividend of $2.04 per share and has a dividend yield of 10.9%. Caretrust REIT pays an annual dividend of $0.82 per share and has a dividend yield of 4.2%. Select Income REIT pays out 73.4% of its earnings in the form of a dividend. Caretrust REIT pays out 70.7% 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. Select Income REIT has increased its dividend for 6 consecutive years and Caretrust REIT has increased its dividend for 2 consecutive years. Select Income REIT is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Select Income REIT and Caretrust REIT’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Select Income REIT 16.05% 3.33% 1.58%
Caretrust REIT 29.14% 7.01% 3.68%

Risk and Volatility

Select Income REIT has a beta of 0.81, indicating that its stock price is 19% less volatile than the S&P 500. Comparatively, Caretrust REIT has a beta of 0.76, indicating that its stock price is 24% less volatile than the S&P 500.

Analyst Ratings

This is a summary of current ratings and recommmendations for Select Income REIT and Caretrust REIT, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Select Income REIT 0 2 2 0 2.50
Caretrust REIT 0 2 5 0 2.71

Select Income REIT presently has a consensus target price of $25.67, suggesting a potential upside of 37.92%. Caretrust REIT has a consensus target price of $19.29, suggesting a potential downside of 1.50%. Given Select Income REIT’s higher probable upside, research analysts plainly believe Select Income REIT is more favorable than Caretrust REIT.

Valuation & Earnings

This table compares Select Income REIT and Caretrust REIT’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Select Income REIT $468.10 million 3.59 $66.90 million $2.78 6.74
Caretrust REIT $132.98 million 12.35 $25.87 million $1.16 16.88

Select Income REIT has higher revenue and earnings than Caretrust REIT. Select Income REIT is trading at a lower price-to-earnings ratio than Caretrust REIT, indicating that it is currently the more affordable of the two stocks.

Summary

Caretrust REIT beats Select Income REIT on 9 of the 17 factors compared between the two stocks.

Select Income REIT Company Profile

SIR is a real estate investment trust, or REIT, that owns directly or indirectly through its subsidiaries, including its majority owned subsidiary, ILPT, properties that are primarily net leased to single tenants. As of September 30, 2018, our consolidated portfolio included 368 buildings, leasable land parcels and easements with approximately 45.8 million rentable square feet located in 36 states. SIR owned 99 of these buildings and leasable land parcels with approximately 16.5 million rentable square feet, which are primarily office buildings, and ILPT owned 269 of these buildings, leasable land parcels and easements with approximately 29.2 million rentable square feet, including 226 buildings, leasable land parcels and easements with approximately 16.8 million rentable square feet which are primarily leasable industrial and commercial lands located in Hawaii. ILPT was our wholly owned subsidiary until January 17, 2018, when it completed an initial public offering, or the ILPT IPO, of its common shares and became a publicly traded REIT. We remain ILPT's largest shareholder and, as of the date hereof, we own 45.0 million, or approximately 69.2%, of ILPT's outstanding common shares. Pursuant to the Merger Agreement, we will, subject to the satisfaction of certain conditions, distribute all 45.0 million of the ILPT common shares that we own to our shareholders prior to the merger. We have been investment grade rated since 2014, and we are included in the Russell 2000® Index and the MSCI US REIT Index.

Caretrust REIT Company Profile

CareTrust REIT, Inc. is a self-administered, publicly-traded real estate investment trust engaged in the ownership, acquisition and leasing of seniors housing and healthcare-related properties. With 189 net-leased healthcare properties and three operated seniors housing properties in 25 states, CareTrust REIT is pursuing opportunities across the nation to acquire properties that will be leased to a diverse group of local, regional and national seniors housing operators, healthcare services providers, and other healthcare-related businesses.

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