Critical Contrast: Capstead Mortgage (CMO) and KKR Real Estate Finance Trust (KREF)

Capstead Mortgage (NYSE: CMO) and KKR Real Estate Finance Trust (NYSE:KREF) are both small-cap financials companies, but which is the better stock? We will compare the two businesses based on the strength of their valuation, earnings, analyst recommendations, institutional ownership, profitability, dividends and risk.

Earnings and Valuation

This table compares Capstead Mortgage and KKR Real Estate Finance Trust’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Capstead Mortgage $233.40 million 3.51 $79.58 million $0.65 13.17
KKR Real Estate Finance Trust $41.19 million 25.50 $31.15 million $1.04 18.81

Capstead Mortgage has higher revenue and earnings than KKR Real Estate Finance Trust. Capstead Mortgage is trading at a lower price-to-earnings ratio than KKR Real Estate Finance Trust, indicating that it is currently the more affordable of the two stocks.

Dividends

Capstead Mortgage pays an annual dividend of $0.76 per share and has a dividend yield of 8.9%. KKR Real Estate Finance Trust pays an annual dividend of $1.48 per share and has a dividend yield of 7.6%. Capstead Mortgage pays out 116.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. KKR Real Estate Finance Trust pays out 142.3% 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 is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares Capstead Mortgage and KKR Real Estate Finance Trust’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Capstead Mortgage 34.10% 7.56% 0.56%
KKR Real Estate Finance Trust 77.41% 6.08% 0.75%

Insider & Institutional Ownership

71.2% of Capstead Mortgage shares are held by institutional investors. Comparatively, 70.7% of KKR Real Estate Finance Trust shares are held by institutional investors. 1.7% of Capstead Mortgage shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Analyst Ratings

This is a breakdown of recent recommendations for Capstead Mortgage and KKR Real Estate Finance Trust, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Capstead Mortgage 0 0 1 0 3.00
KKR Real Estate Finance Trust 1 2 1 0 2.00

Capstead Mortgage currently has a consensus price target of $9.50, suggesting a potential upside of 10.98%. KKR Real Estate Finance Trust has a consensus price target of $22.50, suggesting a potential upside of 15.03%. Given KKR Real Estate Finance Trust’s higher probable upside, analysts clearly believe KKR Real Estate Finance Trust is more favorable than Capstead Mortgage.

Summary

Capstead Mortgage beats KKR Real Estate Finance Trust on 8 of the 14 factors compared between the two stocks.

About Capstead Mortgage

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.

About KKR Real Estate Finance Trust

KKR Real Estate Finance Trust Inc is a real estate finance company that focuses primarily on originating and acquiring senior mortgage loans secured by commercial real estate assets (CRE). KKR manages investments across multiple asset classes, including private equity, real estate, energy, infrastructure, credit and hedge funds. The Company’s investment strategy is to originate or acquire senior mortgage loans collateralized by institutional-quality CRE assets. Its target assets also include mezzanine loans, preferred equity and other debt-oriented instruments. The Company’s investment objective is capital preservation and generating attractive risk-adjusted returns for its stockholders over the long term, primarily through dividends.

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