Reviewing Arlington Asset Investment (AI) and Goldman Sachs BDC (GSBD)

Arlington Asset Investment (NYSE: AI) and Goldman Sachs BDC (NYSE:GSBD) are both small-cap financials companies, but which is the superior investment? We will contrast the two companies based on the strength of their profitability, analyst recommendations, earnings, institutional ownership, dividends, valuation and risk.

Institutional & Insider Ownership

37.8% of Arlington Asset Investment shares are held by institutional investors. Comparatively, 36.5% of Goldman Sachs BDC shares are held by institutional investors. 5.9% of Arlington Asset Investment shares are held by insiders. Comparatively, 0.3% of Goldman Sachs BDC shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Dividends

Arlington Asset Investment pays an annual dividend of $2.20 per share and has a dividend yield of 18.7%. Goldman Sachs BDC pays an annual dividend of $1.80 per share and has a dividend yield of 8.3%. Arlington Asset Investment pays out -150.7% of its earnings in the form of a dividend. Goldman Sachs BDC pays out -818.2% 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. Arlington Asset Investment has increased its dividend for 2 consecutive years. Arlington Asset Investment is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Arlington Asset Investment and Goldman Sachs BDC’s 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%
Goldman Sachs BDC 32.19% 11.34% 6.65%

Analyst Ratings

This is a summary of recent ratings and price targets for Arlington Asset Investment and Goldman Sachs BDC, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Arlington Asset Investment 0 1 2 0 2.67
Goldman Sachs BDC 0 2 3 0 2.60

Arlington Asset Investment presently has a consensus target price of $13.75, suggesting a potential upside of 16.71%. Goldman Sachs BDC has a consensus target price of $22.80, suggesting a potential upside of 5.51%. Given Arlington Asset Investment’s stronger consensus rating and higher possible upside, equities research analysts plainly believe Arlington Asset Investment is more favorable than Goldman Sachs BDC.

Earnings and Valuation

This table compares Arlington Asset Investment and Goldman Sachs BDC’s 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) -8.07
Goldman Sachs BDC $125.11 million 6.93 $40.65 million ($0.22) -98.23

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

Summary

Goldman Sachs BDC beats Arlington Asset Investment on 9 of the 16 factors compared between the two stocks.

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 Goldman Sachs BDC

Goldman Sachs BDC, Inc. is a closed-end management investment company. The Company is a specialty finance company, which is focused on lending to middle-market companies. The Company’s investment objective is to generate current income and, to a lesser extent, capital appreciation primarily through direct originations of secured debt, including first lien, including first lien, unitranche, including last out portions of such loans, and second lien debt, and unsecured debt, including mezzanine debt, as well as through select equity investments. The Company invests primarily in the United States middle-market companies. The Company invests in illiquid securities, including debt and equity investments, of middle-market companies. As of December 31, 2016, its portfolio included first lien/senior secured debt, first lien/last-out unitranche, second lien/senior secured debt, unsecured debt, preferred stock, common stock, and investment funds and vehicles.

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