Critical Comparison: Two Harbors Investments (NYSE:TWO) vs. Franklin BSP Realty Trust (NYSE:FBRT)

Franklin BSP Realty Trust (NYSE:FBRT) and Two Harbors Investments (NYSE:TWO) are both small-cap finance companies, but which is the superior investment? We will compare the two companies based on the strength of their risk, analyst recommendations, valuation, profitability, dividends, institutional ownership and earnings.

Analyst Recommendations

This is a breakdown of recent recommendations for Franklin BSP Realty Trust and Two Harbors Investments, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Franklin BSP Realty Trust	1	1	3	0	2.40
Two Harbors Investments	2	7	0	0	1.78

Franklin BSP Realty Trust currently has a consensus price target of $14.00, indicating a potential upside of 36.45%. Two Harbors Investments has a consensus price target of $12.88, indicating a potential upside of 14.14%. Given Franklin BSP Realty Trust’s stronger consensus rating and higher probable upside, equities analysts plainly believe Franklin BSP Realty Trust is more favorable than Two Harbors Investments.

Dividends

Franklin BSP Realty Trust pays an annual dividend of $1.42 per share and has a dividend yield of 13.8%. Two Harbors Investments pays an annual dividend of $1.36 per share and has a dividend yield of 12.1%. Franklin BSP Realty Trust pays out 177.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Two Harbors Investments pays out -27.8% of its earnings in the form of a dividend. Two Harbors Investments has increased its dividend for 1 consecutive years.

Insider & Institutional Ownership

59.9% of Franklin BSP Realty Trust shares are owned by institutional investors. Comparatively, 64.2% of Two Harbors Investments shares are owned by institutional investors. 0.7% of Franklin BSP Realty Trust shares are owned by insiders. Comparatively, 0.6% of Two Harbors Investments shares are owned 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.

Profitability

This table compares Franklin BSP Realty Trust and Two Harbors Investments’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Franklin BSP Realty Trust	38.83%	8.86%	1.91%
Two Harbors Investments	-109.90%	12.00%	1.29%

Volatility and Risk

Franklin BSP Realty Trust has a beta of 0.98, suggesting that its share price is 2% less volatile than the S&P 500. Comparatively, Two Harbors Investments has a beta of 1.19, suggesting that its share price is 19% more volatile than the S&P 500.

Valuation and Earnings

This table compares Franklin BSP Realty Trust and Two Harbors Investments”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Franklin BSP Realty Trust	$210.45 million	3.98	$95.88 million	$0.80	12.83
Two Harbors Investments	$412.00 million	2.85	-$454.30 million	($4.89)	-2.31

Franklin BSP Realty Trust has higher earnings, but lower revenue than Two Harbors Investments. Two Harbors Investments is trading at a lower price-to-earnings ratio than Franklin BSP Realty Trust, indicating that it is currently the more affordable of the two stocks.

Summary

Franklin BSP Realty Trust beats Two Harbors Investments on 11 of the 17 factors compared between the two stocks.

About Franklin BSP Realty Trust

Benefit Street Partners operates as a self-managed real estate investment trust (REIT). BSP earns income from investing in a leveraged portfolio of residential mortgage pass-through securities consisting almost exclusively of adjustable-rate mortgage (ARM) securities issued and guaranteed by government-sponsored enterprises, either Federal National Mortgage Association (Fannie Mae) or Federal Home Loan Mortgage Corporation (Freddie Mac) (together, the government-sponsored enterprises (GSEs)), or by an agency of the federal government, Government National Mortgage Association (Ginnie Mae). BSP’s investment strategy focuses on managing a portfolio of residential mortgage investments consisting almost exclusively of ARM Agency Securities. As of December 31, 2012, the Company’s securities consisted of Agency Securities classified as available-for-sale and Residential mortgage securities classified as held-to-maturity.

About Two Harbors Investments

Two Harbors Investment Corp. invests in, finances, and manages mortgage servicing rights (MSRs), agency residential mortgage-backed securities (RMBS), and other financial assets through RoundPoint in the United States. The company target assets include agency RMBS collateralized by fixed rate mortgage loans, adjustable rate mortgage loans, hybrid mortgage loans, or derivatives; and other assets, such as financial and mortgage-related assets, including non-agency securities and non-hedging transactions. It qualifies as a REIT for federal income tax purposes. As a REIT, the company must distribute at least 90% of annual taxable income to its stockholders. Two Harbors Investment Corp. was incorporated in 2009 and is headquartered in St. Louis Park, Minnesota.