Critical Review: TPG RE Finance Trust (NYSE:TRTX) versus Redwood Trust (NYSE:RWT)

Redwood Trust (NYSE:RWT) and TPG RE Finance Trust (NYSE:TRTX) are both small-cap finance companies, but which is the superior investment? We will contrast the two companies based on the strength of their risk, valuation, profitability, analyst recommendations, dividends, earnings and institutional ownership.

Profitability

This table compares Redwood Trust and TPG RE Finance Trust’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Redwood Trust	0.42%	16.02%	0.57%
TPG RE Finance Trust	17.03%	6.85%	1.66%

Institutional & Insider Ownership

74.3% of Redwood Trust shares are owned by institutional investors. Comparatively, 57.1% of TPG RE Finance Trust shares are owned by institutional investors. 3.3% of Redwood Trust shares are owned by insiders. Comparatively, 3.0% of TPG RE Finance Trust shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Risk & Volatility

Redwood Trust has a beta of 1.38, meaning that its share price is 38% more volatile than the S&P 500. Comparatively, TPG RE Finance Trust has a beta of 1.41, meaning that its share price is 41% more volatile than the S&P 500.

Analyst Recommendations

This is a summary of current ratings and price targets for Redwood Trust and TPG RE Finance Trust, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Redwood Trust	2	3	6	0	2.36
TPG RE Finance Trust	0	2	4	0	2.67

Redwood Trust presently has a consensus price target of $6.00, indicating a potential upside of 26.74%. TPG RE Finance Trust has a consensus price target of $10.00, indicating a potential upside of 24.15%. Given Redwood Trust’s higher probable upside, research analysts clearly believe Redwood Trust is more favorable than TPG RE Finance Trust.

Dividends

Redwood Trust pays an annual dividend of $0.72 per share and has a dividend yield of 15.2%. TPG RE Finance Trust pays an annual dividend of $0.96 per share and has a dividend yield of 11.9%. Redwood Trust pays out -1,800.0% of its earnings in the form of a dividend. TPG RE Finance Trust pays out 177.8% 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 has raised its dividend for 1 consecutive years. Redwood Trust is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Valuation and Earnings

This table compares Redwood Trust and TPG RE Finance Trust”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Redwood Trust	$1.18 billion	0.50	-$70.03 million	($0.04)	-118.35
TPG RE Finance Trust	$332.58 million	1.86	$60.32 million	$0.54	14.92

TPG RE Finance Trust has lower revenue, but higher earnings than Redwood Trust. Redwood Trust is trading at a lower price-to-earnings ratio than TPG RE Finance Trust, indicating that it is currently the more affordable of the two stocks.

Summary

Redwood Trust beats TPG RE Finance Trust on 9 of the 17 factors compared between the two stocks.

About Redwood Trust

Redwood Trust, Inc., together with its subsidiaries, operates as a specialty finance company in the United States. The company operates through three segments: Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking, and Investment Portfolio. The Residential Consumer Mortgage Banking segment operates a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale, securitization, or transfer to its investment portfolio. This segment also offers derivative financial instruments to manage risks associated with residential loans. The Residential Investor Mortgage Banking segment operates a platform that originates business purpose loans to investors in single-family and multifamily residential properties and bridge loans for subsequent securitization, sale, or transfer into its investment portfolio. The Investment Portfolio segment invests in securities retained from residential consumer and investor securitization activities, and business purpose lending bridge loans, as well as residential mortgage-backed securities issued by third parties, Freddie Mac K-Series multifamily loan securitizations and reperforming loan securitizations, servicer advance investments, home equity investments, and other housing-related investments. The company is elected to be taxed as a real estate investment trust (REIT) for federal income tax purposes. Redwood Trust, Inc. was incorporated in 1994 and is headquartered in Mill Valley, California.

About TPG RE Finance Trust

TPG RE Finance Trust, Inc., a commercial real estate finance company, originates, acquires, and manages commercial mortgage loans and other commercial real estate-related debt instruments in the United States. It invests in commercial mortgage loans; subordinate mortgage interests, mezzanine loans, secured real estate securities, note financing, preferred equity, and miscellaneous debt instruments; and commercial real estate collateralized loan obligations and commercial mortgage-backed securities secured by properties primarily in the multifamily, life science, mixed-use, hospitality, self storage, industrial, and retail real estate sectors. The company qualifies as a real estate investment trust for federal income tax purposes. It generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. TPG RE Finance Trust, Inc. was incorporated in 2014 and is based in New York, New York.