Head to Head Review: Ellington Residential Mortgage REIT (EARN) vs. Redwood Trust (RWT)

Ellington Residential Mortgage REIT (NYSE: EARN) and Redwood Trust (NYSE:RWT) are both small-cap finance companies, but which is the superior stock? We will compare the two businesses based on the strength of their analyst recommendations, dividends, valuation, institutional ownership, earnings, profitability and risk.

Valuation & Earnings

This table compares Ellington Residential Mortgage REIT and Redwood Trust’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Ellington Residential Mortgage REIT $24.22 million 7.03 $11.90 million $1.07 11.93
Redwood Trust $246.00 million 4.67 $131.25 million $1.38 10.80

Redwood Trust has higher revenue and earnings than Ellington Residential Mortgage REIT. Redwood Trust is trading at a lower price-to-earnings ratio than Ellington Residential Mortgage REIT, indicating that it is currently the more affordable of the two stocks.

Risk and Volatility

Ellington Residential Mortgage REIT has a beta of 0.59, meaning that its stock price is 41% less volatile than the S&P 500. Comparatively, Redwood Trust has a beta of 0.9, meaning that its stock price is 10% less volatile than the S&P 500.

Dividends

Ellington Residential Mortgage REIT pays an annual dividend of $1.60 per share and has a dividend yield of 12.5%. Redwood Trust pays an annual dividend of $1.12 per share and has a dividend yield of 7.5%. Ellington Residential Mortgage REIT pays out 149.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Redwood Trust pays out 81.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Insider and Institutional Ownership

66.7% of Ellington Residential Mortgage REIT shares are owned by institutional investors. Comparatively, 85.4% of Redwood Trust shares are owned by institutional investors. 2.7% of Ellington Residential Mortgage REIT shares are owned by company insiders. Comparatively, 2.3% of Redwood Trust shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Analyst Recommendations

This is a summary of recent recommendations and price targets for Ellington Residential Mortgage REIT and Redwood Trust, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Ellington Residential Mortgage REIT 0 2 0 0 2.00
Redwood Trust 0 0 2 0 3.00

Ellington Residential Mortgage REIT presently has a consensus target price of $14.00, suggesting a potential upside of 9.63%. Redwood Trust has a consensus target price of $17.00, suggesting a potential upside of 14.09%. Given Redwood Trust’s stronger consensus rating and higher possible upside, analysts plainly believe Redwood Trust is more favorable than Ellington Residential Mortgage REIT.

Profitability

This table compares Ellington Residential Mortgage REIT and Redwood Trust’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Ellington Residential Mortgage REIT 40.44% 12.02% 1.17%
Redwood Trust 41.62% 9.87% 2.06%

Summary

Redwood Trust beats Ellington Residential Mortgage REIT on 12 of the 16 factors compared between the two stocks.

Ellington Residential Mortgage REIT Company Profile

Ellington Residential Mortgage REIT is a real estate investment trust. The Company conducts its business through its subsidiaries, EARN OP GP LLC and Ellington Residential Mortgage LP (the Operating Partnership). It specializes in acquiring, investing in and managing residential mortgage- and real estate-related assets. It constructs and managing a portfolio consisting of residential mortgage-backed securities (RMBS) for which the principal and interest payments are guaranteed by the United States Government agency or the United States Government-sponsored entity (Agency RMBS) and, to a lesser extent, RMBS backed by prime jumbo, Alternative A-paper manufactured housing, and subprime residential mortgage loans (non-Agency RMBS). Its Agency RMBS include residential mortgage pass-through certificates, collateralized mortgage obligations (CMOs) and to-be-announced mortgage pass-through certificates (TBAs). Its non-agency RMBS include investment grade and non-investment grade classes.

Redwood Trust Company Profile

Redwood Trust, Inc., through its subsidiaries, focuses on investing in mortgage and other real estate related assets. The Company is engaged in mortgage banking activities. The Company operates through three segments: Residential Investments, Residential Mortgage Banking and Commercial. The Residential Investments segment includes a portfolio of investments in residential mortgage-backed securities (RMBS) retained from its Sequoia securitizations. The Residential Mortgage Banking segment consists of operating a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale, securitization, or transfer to its investment portfolio. Its Commercial segment consists of investments in multi-family securities and commercial mortgage-backed securities, as well as a remaining commercial loan investment following the sale of the remainder of its commercial mezzanine loan portfolio.

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