Contrasting Hatteras Financial Corp. (HTS) & Capstead Mortgage Corporation (CMO)

Hatteras Financial Corp. (NYSE: HTS) and Capstead Mortgage Corporation (NYSE:CMO) are both small-cap mortgage reits companies, but which is the better business? We will contrast the two businesses based on the strength of their institutional ownership, valuation, analyst recommendations, profitability, dividends, earnings and risk.

Analyst Recommendations

This is a breakdown of recent ratings and recommmendations for Hatteras Financial Corp. and Capstead Mortgage Corporation, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Hatteras Financial Corp. 0 0 0 0 N/A
Capstead Mortgage Corporation 0 2 0 0 2.00

Capstead Mortgage Corporation has a consensus target price of $11.00, indicating a potential upside of 25.86%. Given Capstead Mortgage Corporation’s higher probable upside, analysts clearly believe Capstead Mortgage Corporation is more favorable than Hatteras Financial Corp..

Valuation & Earnings

This table compares Hatteras Financial Corp. and Capstead Mortgage Corporation’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
Hatteras Financial Corp. N/A N/A N/A ($0.09) -181.00
Capstead Mortgage Corporation $213.33 million 3.94 $82.87 million $0.61 14.33

Capstead Mortgage Corporation has higher revenue and earnings than Hatteras Financial Corp.. Hatteras Financial Corp. is trading at a lower price-to-earnings ratio than Capstead Mortgage Corporation, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Hatteras Financial Corp. and Capstead Mortgage Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Hatteras Financial Corp. N/A -16.93% -1.89%
Capstead Mortgage Corporation 34.00% 7.16% 0.54%

Dividends

Hatteras Financial Corp. pays an annual dividend of $1.80 per share and has a dividend yield of 11.0%. Capstead Mortgage Corporation pays an annual dividend of $0.76 per share and has a dividend yield of 8.7%. Hatteras Financial Corp. pays out -2,000.0% of its earnings in the form of a dividend. Capstead Mortgage Corporation pays out 124.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Capstead Mortgage Corporation has increased its dividend for 3 consecutive years. Hatteras Financial Corp. is clearly the better dividend stock, given its higher yield and lower payout ratio.

Insider and Institutional Ownership

71.9% of Capstead Mortgage Corporation shares are held by institutional investors. 1.7% of Capstead Mortgage Corporation shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Summary

Capstead Mortgage Corporation beats Hatteras Financial Corp. on 9 of the 11 factors compared between the two stocks.

Hatteras Financial Corp. Company Profile

Hatteras Financial Corp. is an externally managed mortgage real estate investment trust (REIT) that invests in single-family residential mortgage real estate assets, such as mortgage-backed security (MBS), mortgage servicing right (MSR), residential mortgage loans and other financial assets. MBS are pass-through securities consisting of a pool of mortgage loans. Its primary business is owning and managing agency securities, with a primary focus on adjustable-rate mortgage securities. Its primary investment assets include Agency MBS; other agency issued securities, such as credit-risk transfer bonds; MSR; non-agency securities; residential mortgage loans, and other real estate related assets as permitted by its investment guidelines and REIT requirements. Its business operations consist of the Hatteras Financial Corp., Onslow Bay Financial LLC, First Winston Securities, Inc. and Wind River TRS LLC. It is externally managed and advised by its manager, Atlantic Capital Advisors LLC.

Capstead Mortgage Corporation Company Profile

Capstead Mortgage Corporation operates as a self-managed real estate investment trust (REIT). The Company manages a leveraged portfolio of residential mortgage pass-through securities consisting of relatively short-duration adjustable-rate mortgage (ARM) securities issued and guaranteed by government-sponsored enterprises, either Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac), or by an agency of the federal government, the Government National Mortgage Association (Ginnie Mae). The Company finances its residential mortgage investments by leveraging its long-term investment capital with secured borrowings consisting primarily of borrowings under repurchase arrangements with commercial banks and other financial institutions. The Company’s portfolio of residential mortgage investments includes residential mortgage investments.

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