Critical Contrast: Starwood Property Trust (STWD) & Ellington Residential Mortgage REIT (EARN)

Starwood Property Trust (NYSE: STWD) and Ellington Residential Mortgage REIT (NYSE:EARN) are both finance companies, but which is the better stock? We will contrast the two businesses based on the strength of their profitability, dividends, earnings, valuation, risk, analyst recommendations and institutional ownership.

Earnings & Valuation

This table compares Starwood Property Trust and Ellington Residential Mortgage REIT’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
Starwood Property Trust $784.67 million 7.18 $365.18 million $1.76 12.28
Ellington Residential Mortgage REIT $24.22 million 7.18 $11.90 million $1.07 12.18

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

Risk and Volatility

Starwood Property Trust has a beta of 0.52, meaning that its share price is 48% less volatile than the S&P 500. Comparatively, Ellington Residential Mortgage REIT has a beta of 0.61, meaning that its share price is 39% less volatile than the S&P 500.

Institutional & Insider Ownership

68.8% of Starwood Property Trust shares are owned by institutional investors. Comparatively, 66.3% of Ellington Residential Mortgage REIT shares are owned by institutional investors. 2.4% of Starwood Property Trust shares are owned by company insiders. Comparatively, 2.7% of Ellington Residential Mortgage REIT shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Profitability

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

Net Margins Return on Equity Return on Assets
Starwood Property Trust 55.89% 11.39% 0.69%
Ellington Residential Mortgage REIT 40.44% 12.84% 1.22%

Analyst Recommendations

This is a breakdown of current ratings and target prices for Starwood Property Trust and Ellington Residential Mortgage REIT, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Starwood Property Trust 0 1 1 0 2.50
Ellington Residential Mortgage REIT 0 2 0 0 2.00

Starwood Property Trust presently has a consensus price target of $24.00, indicating a potential upside of 11.06%. Ellington Residential Mortgage REIT has a consensus price target of $14.00, indicating a potential upside of 7.44%. Given Starwood Property Trust’s stronger consensus rating and higher possible upside, equities research analysts clearly believe Starwood Property Trust is more favorable than Ellington Residential Mortgage REIT.

Dividends

Starwood Property Trust pays an annual dividend of $1.92 per share and has a dividend yield of 8.9%. Ellington Residential Mortgage REIT pays an annual dividend of $1.60 per share and has a dividend yield of 12.3%. Starwood Property Trust pays out 109.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. 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.

Summary

Starwood Property Trust beats Ellington Residential Mortgage REIT on 10 of the 16 factors compared between the two stocks.

About Starwood Property Trust

Starwood Property Trust, Inc. is a real estate investment trust. The Company operates through three business segments: Real estate lending (the Lending Segment), which engages primarily in originating, acquiring, financing and managing commercial first mortgages, subordinated mortgages, mezzanine loans, preferred equity, commercial mortgage-backed securities (CMBS), residential mortgage-backed securities, and other real estate and real estate-related debt investments; Real estate investing and servicing (the Investing and Servicing Segment), which includes a servicing business in the United States that manages and works out problem assets; an investment business that selectively acquires and manages unrated, investment grade and non-investment grade rated CMBS, and a mortgage loan business, and Real estate property (the Property Segment), which engages primarily in acquiring and managing equity interests in stabilized commercial real estate properties.

About Ellington Residential Mortgage REIT

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.

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