Head-To-Head Review: Lument Finance Trust (NYSE:LFT) & Two Harbors Investments (NYSE:TWO)

Two Harbors Investments (NYSE:TWO) and Lument Finance Trust (NYSE:LFT) are both small-cap finance companies, but which is the superior business? We will contrast the two companies based on the strength of their earnings, profitability, risk, analyst recommendations, dividends, institutional ownership and valuation.

Analyst Recommendations

This is a summary of current ratings and recommmendations for Two Harbors Investments and Lument Finance Trust, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Two Harbors Investments	2	4	0	1	2.00
Lument Finance Trust	1	0	0	0	1.00

Two Harbors Investments currently has a consensus target price of $12.75, suggesting a potential upside of 5.72%. Given Two Harbors Investments’ stronger consensus rating and higher possible upside, equities research analysts plainly believe Two Harbors Investments is more favorable than Lument Finance Trust.

Risk and Volatility

Two Harbors Investments has a beta of 1.04, indicating that its stock price is 4% more volatile than the S&P 500. Comparatively, Lument Finance Trust has a beta of 0.56, indicating that its stock price is 44% less volatile than the S&P 500.

Dividends

Two Harbors Investments pays an annual dividend of $0.49 per share and has a dividend yield of 4.1%. Lument Finance Trust pays an annual dividend of $0.16 per share and has a dividend yield of 23.8%. Two Harbors Investments pays out -66.2% of its earnings in the form of a dividend. Lument Finance Trust pays out -123.1% 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. Two Harbors Investments has raised its dividend for 1 consecutive years and Lument Finance Trust has raised its dividend for 2 consecutive years. Lument Finance Trust is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Institutional & Insider Ownership

64.2% of Two Harbors Investments shares are owned by institutional investors. Comparatively, 19.5% of Lument Finance Trust shares are owned by institutional investors. 0.6% of Two Harbors Investments shares are owned by company insiders. Comparatively, 3.3% of Lument Finance Trust shares are owned by company 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.

Profitability

This table compares Two Harbors Investments and Lument Finance Trust’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Two Harbors Investments	-6.09%	12.79%	1.44%
Lument Finance Trust	-2.59%	5.65%	0.86%

Earnings and Valuation

This table compares Two Harbors Investments and Lument Finance Trust”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Two Harbors Investments	$412.00 million	3.08	-$454.30 million	($0.74)	-16.30
Lument Finance Trust	$79.00 million	0.45	-$2.74 million	($0.13)	-5.18

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

Summary

Two Harbors Investments beats Lument Finance Trust on 9 of the 17 factors compared between the two stocks.

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.

About Lument Finance Trust

Lument Finance Trust, Inc., a real estate investment trust, focuses on investing in, financing, and managing a portfolio of commercial real estate (CRE) debt investments in the United States. The company primarily invests in transitional floating rate CRE mortgage loans on middle market multi-family assets; and other CRE -related investments, including mezzanine loans, preferred equity, commercial mortgage-backed securities, fixed rate loans, construction loans, and other CRE debt instruments. Lument Finance Trust, Inc. is qualified as a real estate investment trust (REIT) under the Internal Revenue Code of 1986. As a REIT, it would not be subject to federal income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was formerly known as Hunt Companies Finance Trust, Inc. and changed its name to Lument Finance Trust, Inc. in December 2020. Lument Finance Trust, Inc. was incorporated in 2012 and is headquartered in New York, New York.