Analyzing Dynex Capital (DX) & Annaly Capital Management (NLY)

Dynex Capital (NYSE: DX) and Annaly Capital Management (NYSE:NLY) are both mortgage reits companies, but which is the better investment? We will contrast the two businesses based on the strength of their profitability, earnings, valuation, risk, institutional ownership, dividends and analyst recommendations.

Dividends

Dynex Capital pays an annual dividend of $0.72 per share and has a dividend yield of 10.4%. Annaly Capital Management pays an annual dividend of $1.20 per share and has a dividend yield of 10.5%. Dynex Capital pays out 50.0% of its earnings in the form of a dividend. Annaly Capital Management pays out 48.0% 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.

Insider and Institutional Ownership

41.7% of Dynex Capital shares are owned by institutional investors. Comparatively, 49.3% of Annaly Capital Management shares are owned by institutional investors. 7.1% of Dynex Capital shares are owned by insiders. Comparatively, 0.4% of Annaly Capital Management shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Analyst Recommendations

This is a summary of recent ratings for Dynex Capital and Annaly Capital Management, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Dynex Capital 0 2 1 0 2.33
Annaly Capital Management 1 3 2 0 2.17

Dynex Capital presently has a consensus target price of $7.38, suggesting a potential upside of 6.88%. Annaly Capital Management has a consensus target price of $11.08, suggesting a potential downside of 2.61%. Given Dynex Capital’s stronger consensus rating and higher probable upside, equities analysts clearly believe Dynex Capital is more favorable than Annaly Capital Management.

Earnings & Valuation

This table compares Dynex Capital and Annaly Capital Management’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
Dynex Capital $91.90 million 4.00 $43.09 million $1.44 4.79
Annaly Capital Management $2.21 billion 5.97 $1.43 billion $2.50 4.55

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

Risk and Volatility

Dynex Capital has a beta of 0.81, suggesting that its stock price is 19% less volatile than the S&P 500. Comparatively, Annaly Capital Management has a beta of 0.23, suggesting that its stock price is 77% less volatile than the S&P 500.

Profitability

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

Net Margins Return on Equity Return on Assets
Dynex Capital 86.86% 11.08% 1.27%
Annaly Capital Management 104.56% 11.59% 1.52%

Summary

Annaly Capital Management beats Dynex Capital on 11 of the 16 factors compared between the two stocks.

About Dynex Capital

Dynex Capital, Inc. is an internally managed mortgage real estate investment trust, which invests in residential and commercial mortgage securities on a leveraged basis. The Company’s objective is to provide attractive risk-adjusted returns to its shareholders over the long term that is reflective of a leveraged fixed income portfolio with a focus on capital preservation. It seeks to provide returns to its shareholders through regular quarterly dividends and through capital appreciation. It invests in Agency and non-Agency mortgage-backed securities (MBS). MBS consists of residential MBS (RMBS), commercial MBS (CMBS) and CMBS interest-only securities. Agency MBS have a guaranty of principal payment by an agency of the United States Government or a government-sponsored entity (GSE), such as Fannie Mae and Freddie Mac.

About Annaly Capital Management

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.

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