Comparing Ellington Financial (NYSE:EFC) & Starwood Property Trust (NYSE:STWD)

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

Volatility and Risk

Ellington Financial has a beta of 0.94, suggesting that its share price is 6% less volatile than the S&P 500. Comparatively, Starwood Property Trust has a beta of 0.98, suggesting that its share price is 2% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of recent recommendations and price targets for Ellington Financial and Starwood Property Trust, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Ellington Financial	0	2	2	1	2.80
Starwood Property Trust	1	2	4	0	2.43

Ellington Financial presently has a consensus price target of $14.08, suggesting a potential upside of 3.67%. Starwood Property Trust has a consensus price target of $19.70, suggesting a potential upside of 14.84%. Given Starwood Property Trust’s higher possible upside, analysts clearly believe Starwood Property Trust is more favorable than Ellington Financial.

Dividends

Ellington Financial pays an annual dividend of $1.56 per share and has a dividend yield of 11.5%. Starwood Property Trust pays an annual dividend of $1.92 per share and has a dividend yield of 11.2%. Ellington Financial pays out 94.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Starwood Property Trust pays out 200.0% 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 Financial is clearly the better dividend stock, given its higher yield and lower payout ratio.

Valuation & Earnings

This table compares Ellington Financial and Starwood Property Trust”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Ellington Financial	$189.96 million	8.97	$146.87 million	$1.66	8.18
Starwood Property Trust	$1.84 billion	3.45	$411.54 million	$0.96	17.87

Starwood Property Trust has higher revenue and earnings than Ellington Financial. Ellington Financial 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.

Insider and Institutional Ownership

55.6% of Ellington Financial shares are owned by institutional investors. Comparatively, 49.8% of Starwood Property Trust shares are owned by institutional investors. 3.2% of Ellington Financial shares are owned by company insiders. Comparatively, 5.8% of Starwood Property Trust shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Ellington Financial	72.08%	15.81%	1.29%
Starwood Property Trust	18.11%	7.91%	0.89%

Summary

Ellington Financial beats Starwood Property Trust on 10 of the 17 factors compared between the two stocks.

About Ellington Financial

Ellington Financial Inc., through its subsidiary, Ellington Financial Operating Partnership LLC, acquires and manages mortgage-related, consumer-related, corporate-related, and other financial assets in the United States. The company acquires and manages residential mortgage-backed securities (RMBS) backed by prime jumbo, Alt-A, manufactured housing, and subprime mortgage; RMBS for which the principal and interest payments are guaranteed by the U.S. government agency or the U.S. government-sponsored entity; residential mortgage loans; commercial mortgage-backed securities; and commercial mortgage loans and other commercial real estate debt. It also provides collateralized loan obligations; mortgage-related and non-mortgage-related derivatives; corporate debt and equity securities; corporate loans; and other strategic investments; and consumer loans and asset-backed securities backed by consumer and commercial assets. The company qualifies as a real estate investment trust (REIT) for federal income tax purposes. As a REIT, it intends to distribute at least 90% of its taxable income as dividends to shareholders. Ellington Financial LLC was incorporated in 2007 and is headquartered in Old Greenwich, Connecticut.

About Starwood Property Trust

Starwood Property Trust, Inc. operates as a real estate investment trust (REIT) in the United States and internationally. The company operates through Commercial and Residential Lending, Infrastructure Lending, Property, and Investing and Servicing segments. The Commercial and Residential Lending segment originates, acquires, finances, and manages commercial first mortgages, non-agency residential mortgages, subordinated mortgages, mezzanine loans, preferred equity, commercial mortgage-backed securities (CMBS), and residential mortgage-backed securities, as well as other real estate and real estate-related debt investments, include distressed or non-performing loans. The Infrastructure lending segment originates, acquires, finances, and manages infrastructure debt investments. The Property segment engages primarily in acquiring and managing equity interests in stabilized commercial real estate properties, such as multifamily properties and commercial properties subject to net leases, that are held for investment. The Investing and Servicing segment manages and works out problem assets; acquires and manages unrated, investment grade, and non-investment grade rated CMBS comprising subordinated interests of securitization and re-securitization transactions; originates conduit loans for the primary purpose of selling these loans into securitization transactions; and acquires commercial real estate assets that include properties acquired from CMBS trusts. The company qualifies as a REIT for federal income tax purposes and would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was incorporated in 2009 and is headquartered in Greenwich, Connecticut.