Redwood Trust (NYSE:RWT) and Vereit (NYSE:VER) are both finance companies, but which is the superior investment? We will compare the two businesses based on the strength of their risk, valuation, analyst recommendations, profitability, earnings, dividends and institutional ownership.
This table compares Redwood Trust and Vereit’s net margins, return on equity and return on assets.
||Return on Equity
||Return on Assets
Risk and Volatility
Redwood Trust has a beta of 0.68, meaning that its stock price is 32% less volatile than the S&P 500. Comparatively, Vereit has a beta of 0.67, meaning that its stock price is 33% less volatile than the S&P 500.
Earnings and Valuation
This table compares Redwood Trust and Vereit’s gross revenue, earnings per share and valuation.
||Earnings Per Share
Redwood Trust has higher earnings, but lower revenue than Vereit. Vereit is trading at a lower price-to-earnings ratio than Redwood Trust, indicating that it is currently the more affordable of the two stocks.
Redwood Trust pays an annual dividend of $1.20 per share and has a dividend yield of 7.3%. Vereit pays an annual dividend of $0.55 per share and has a dividend yield of 7.4%. Redwood Trust pays out 86.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Vereit pays out 78.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Vereit is clearly the better dividend stock, given its higher yield and lower payout ratio.
This is a summary of current ratings for Redwood Trust and Vereit, as provided by MarketBeat.com.
||Strong Buy Ratings
Redwood Trust currently has a consensus target price of $17.83, suggesting a potential upside of 8.48%. Vereit has a consensus target price of $8.75, suggesting a potential upside of 18.40%. Given Vereit’s higher possible upside, analysts clearly believe Vereit is more favorable than Redwood Trust.
Insider and Institutional Ownership
81.0% of Redwood Trust shares are held by institutional investors. Comparatively, 87.7% of Vereit shares are held by institutional investors. 2.8% of Redwood Trust shares are held by company insiders. Comparatively, 0.1% of Vereit shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.
Redwood Trust beats Vereit on 9 of the 15 factors compared between the two stocks.
About Redwood Trust
Redwood Trust, Inc., together with its subsidiaries, engages in mortgage banking activities in the United States. The company operates through two segments, Investment Portfolio and Residential Mortgage Banking. The Investment Portfolio segment offers a portfolio of investments in residential mortgage-backed securities retained from Sequoia securitizations, and issued by third parties and other credit risk-related investments; and invests in residential loans held for investment and mortgage servicing rights associated with residential loans. The Residential Mortgage Banking segment operates a mortgage loan conduit, which acquires residential loans from third-party originators for sale, securitization, or transfer to investment portfolio. This segment also includes derivative financial instruments to manage risks associated with residential loans. It qualifies as a real estate investment trust (REIT) for federal income tax purposes. As a REIT, the company intends to distribute at least 90% of its taxable income as dividends to shareholders. Redwood Trust, Inc. was founded in 1994 and is headquartered in Mill Valley, California.
VEREIT is a full-service real estate operating company which owns and manages one of the largest portfolios of single-tenant commercial properties in the U.S. The Company has a total asset book value of $14.3 billion including approximately 4,000 properties and 94.6 million square feet. VEREIT's business model provides equity capital to creditworthy corporations in return for long-term leases on their properties. VEREIT is a publicly traded Maryland corporation listed on the New York Stock Exchange.
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