Head-To-Head Comparison: Annaly Capital Management (NLY) versus Redwood Trust (RWT)

Annaly Capital Management (NYSE: NLY) and Redwood Trust (NYSE:RWT) are both finance companies, but which is the superior business? We will contrast the two companies based on the strength of their risk, earnings, profitability, analyst recommendations, institutional ownership, valuation and dividends.

Valuation and Earnings

This table compares Annaly Capital Management and Redwood Trust’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Annaly Capital Management $3.30 billion 4.00 $3.14 billion $2.89 4.19
Redwood Trust $215.70 million 5.87 $134.95 million $1.75 9.38

Annaly Capital Management has higher revenue and earnings than Redwood Trust. Annaly Capital Management is trading at a lower price-to-earnings ratio than Redwood Trust, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a summary of recent ratings and price targets for Annaly Capital Management and Redwood Trust, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Annaly Capital Management 1 3 2 0 2.17
Redwood Trust 0 0 0 0 N/A

Annaly Capital Management presently has a consensus target price of $11.25, suggesting a potential downside of 7.18%. Given Annaly Capital Management’s higher possible upside, analysts clearly believe Annaly Capital Management is more favorable than Redwood Trust.

Risk and Volatility

Annaly Capital Management has a beta of 0.28, meaning that its stock price is 72% less volatile than the S&P 500. Comparatively, Redwood Trust has a beta of 0.87, meaning that its stock price is 13% less volatile than the S&P 500.

Dividends

Annaly Capital Management pays an annual dividend of $1.20 per share and has a dividend yield of 9.9%. Redwood Trust pays an annual dividend of $1.12 per share and has a dividend yield of 6.8%. Annaly Capital Management pays out 41.5% of its earnings in the form of a dividend. Redwood Trust pays out 64.0% 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. Annaly Capital Management is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares Annaly Capital Management and Redwood Trust’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Annaly Capital Management 121.84% 11.33% 1.52%
Redwood Trust 46.04% 12.02% 2.50%

Institutional & Insider Ownership

51.3% of Annaly Capital Management shares are held by institutional investors. Comparatively, 84.7% of Redwood Trust shares are held by institutional investors. 0.4% of Annaly Capital Management shares are held by insiders. Comparatively, 2.3% of Redwood Trust shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Summary

Annaly Capital Management beats Redwood Trust on 8 of the 15 factors compared between the two stocks.

Annaly Capital Management Company Profile

Annaly Capital Management, Inc. is a mortgage real estate investment trust (REIT). The Company owns a portfolio of real estate related investments. Its investment groups primarily consist of Agency, which invests primarily in various types of Agency mortgage-backed securities and related derivatives to hedge these investments; Residential credit, which invests primarily in non-Agency mortgage-backed assets within securitized products and residential mortgage loan markets; Commercial real estate, which originates and invests in commercial mortgage loans, securities, and other commercial real estate investments, and Middle market, which provides customized debt financing to middle-market businesses. Its business operations consist of Annaly Commercial Real Estate Group, Inc., which is its subsidiary that specializes in originating or acquiring, financing and managing commercial loans and other commercial real estate debt; Annaly Middle Market Lending LLC, and RCap Securities, Inc.

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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