Redwood Trust (NYSE: RWT) and PennyMac Mortgage Investment Trust (NYSE:PMT) are both small-cap finance companies, but which is the better investment? We will compare the two companies based on the strength of their profitability, dividends, analyst recommendations, risk, institutional ownership, earnings and valuation.
Redwood Trust pays an annual dividend of $1.12 per share and has a dividend yield of 7.5%. PennyMac Mortgage Investment Trust pays an annual dividend of $1.88 per share and has a dividend yield of 12.3%. Redwood Trust pays out 70.9% of its earnings in the form of a dividend. PennyMac Mortgage Investment Trust pays out 143.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.
This is a summary of recent ratings and recommmendations for Redwood Trust and PennyMac Mortgage Investment Trust, as provided by MarketBeat.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
|PennyMac Mortgage Investment Trust||0||3||1||0||2.25|
Redwood Trust presently has a consensus target price of $17.00, indicating a potential upside of 14.56%. PennyMac Mortgage Investment Trust has a consensus target price of $17.33, indicating a potential upside of 13.14%. Given Redwood Trust’s stronger consensus rating and higher probable upside, research analysts plainly believe Redwood Trust is more favorable than PennyMac Mortgage Investment Trust.
Risk and Volatility
Redwood Trust has a beta of 0.92, suggesting that its stock price is 8% less volatile than the S&P 500. Comparatively, PennyMac Mortgage Investment Trust has a beta of 0.54, suggesting that its stock price is 46% less volatile than the S&P 500.
Earnings & Valuation
This table compares Redwood Trust and PennyMac Mortgage Investment Trust’s revenue, earnings per share and valuation.
|Gross Revenue||Price/Sales Ratio||NetIncome||Earnings Per Share||Price/Earnings Ratio|
|Redwood Trust||$246.00 million||4.65||$131.25 million||$1.58||9.39|
|PennyMac Mortgage Investment Trust||$272.09 million||3.69||$75.81 million||$1.31||11.69|
Redwood Trust has higher revenue, but lower earnings than PennyMac Mortgage Investment Trust. Redwood Trust is trading at a lower price-to-earnings ratio than PennyMac Mortgage Investment Trust, indicating that it is currently the more affordable of the two stocks.
Insider and Institutional Ownership
83.9% of Redwood Trust shares are held by institutional investors. Comparatively, 62.8% of PennyMac Mortgage Investment Trust shares are held by institutional investors. 2.3% of Redwood Trust shares are held by company insiders. Comparatively, 2.1% of PennyMac Mortgage Investment Trust shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.
This table compares Redwood Trust and PennyMac Mortgage Investment Trust’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
|PennyMac Mortgage Investment Trust||36.07%||7.59%||1.75%|
Redwood Trust beats PennyMac Mortgage Investment Trust on 12 of the 15 factors compared between the two stocks.
About Redwood Trust
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.
About PennyMac Mortgage Investment Trust
PennyMac Mortgage Investment Trust is a specialty finance company that invests primarily in residential mortgage loans and mortgage-related assets. The Company conducts all of its operations, and makes all of its investments, through PennyMac Operating Partnership, L.P. (its Operating Partnership) and its subsidiaries. It operates through two segments: correspondent production and investment activities. Its investment activities segment represents the Company’s investments in mortgage-related assets. The correspondent production segment represents the Company’s operations aimed at serving as an intermediary between mortgage lenders and the capital markets by purchasing, pooling and reselling newly originated prime credit quality mortgage loans either directly or in the form of MBS, using the services of PNMAC Capital Management (the Manager or PCM) and PennyMac Loan Services, LLC (PLS), both indirect subsidiaries of PennyMac Financial Services, Inc. (PFSI or PennyMac).
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