Financial Contrast: MFA Financial (MFA) versus Redwood Trust (RWT)

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

Analyst Recommendations

This is a breakdown of current ratings and price targets for MFA Financial and Redwood Trust, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
MFA Financial 0 4 1 0 2.20
Redwood Trust 0 0 2 0 3.00

MFA Financial presently has a consensus price target of $8.75, suggesting a potential upside of 12.18%. Redwood Trust has a consensus price target of $17.00, suggesting a potential upside of 12.14%. Given MFA Financial’s higher possible upside, research analysts clearly believe MFA Financial is more favorable than Redwood Trust.

Dividends

MFA Financial pays an annual dividend of $0.80 per share and has a dividend yield of 10.3%. Redwood Trust pays an annual dividend of $1.12 per share and has a dividend yield of 7.4%. 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. Redwood Trust pays out 70.9% of its earnings in the form of a dividend.

Valuation & Earnings

This table compares MFA Financial and Redwood Trust’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
MFA Financial $566.49 million 5.47 $312.66 million $0.73 10.68
Redwood Trust $246.00 million 4.75 $131.25 million $1.58 9.59

MFA Financial has higher revenue and earnings than Redwood Trust. Redwood Trust 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 MFA Financial and Redwood Trust’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
MFA Financial 59.03% 9.33% 2.50%
Redwood Trust 41.62% 9.87% 2.06%

Volatility and Risk

MFA Financial has a beta of 0.66, suggesting that its stock price is 34% less volatile than the S&P 500. Comparatively, Redwood Trust has a beta of 0.91, suggesting that its stock price is 9% less volatile than the S&P 500.

Institutional and Insider Ownership

80.6% of MFA Financial shares are held by institutional investors. Comparatively, 85.4% of Redwood Trust shares are held by institutional investors. 0.9% of MFA Financial shares are held by insiders. Comparatively, 2.3% of Redwood Trust shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.

Summary

Redwood Trust beats MFA Financial on 9 of the 16 factors compared between the two stocks.

MFA Financial Company Profile

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).

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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