American Homes 4 Rent (NYSE: AMH) and Two Harbors Investment (NYSE:TWO) are both mid-cap finance companies, but which is the superior investment? We will compare the two businesses based on the strength of their profitability, risk, earnings, analyst recommendations, valuation, dividends and institutional ownership.
American Homes 4 Rent pays an annual dividend of $0.20 per share and has a dividend yield of 0.9%. Two Harbors Investment pays an annual dividend of $2.11 per share and has a dividend yield of 12.9%. American Homes 4 Rent pays out -2,000.0% of its earnings in the form of a dividend. Two Harbors Investment pays out 72.8% 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.
Volatility and Risk
American Homes 4 Rent has a beta of 0.68, indicating that its share price is 32% less volatile than the S&P 500. Comparatively, Two Harbors Investment has a beta of 0.52, indicating that its share price is 48% less volatile than the S&P 500.
This is a summary of current recommendations and price targets for American Homes 4 Rent and Two Harbors Investment, as reported by MarketBeat.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
|American Homes 4 Rent||0||1||7||0||2.88|
|Two Harbors Investment||0||2||4||0||2.67|
American Homes 4 Rent currently has a consensus target price of $25.13, suggesting a potential upside of 15.41%. Two Harbors Investment has a consensus target price of $17.92, suggesting a potential upside of 9.31%. Given American Homes 4 Rent’s stronger consensus rating and higher possible upside, research analysts clearly believe American Homes 4 Rent is more favorable than Two Harbors Investment.
Institutional & Insider Ownership
88.2% of American Homes 4 Rent shares are held by institutional investors. 27.8% of American Homes 4 Rent shares are held by company insiders. Comparatively, 1.2% of Two Harbors Investment 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.
This table compares American Homes 4 Rent and Two Harbors Investment’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
|American Homes 4 Rent||6.56%||1.15%||0.75%|
|Two Harbors Investment||63.23%||10.27%||1.52%|
Earnings & Valuation
This table compares American Homes 4 Rent and Two Harbors Investment’s gross revenue, earnings per share and valuation.
|Gross Revenue||Price/Sales Ratio||Net Income||Earnings Per Share||Price/Earnings Ratio|
|American Homes 4 Rent||$878.89 million||7.10||$6.69 million||($0.01)||-2,177.00|
|Two Harbors Investment||$633.49 million||4.51||$353.27 million||$2.90||5.65|
Two Harbors Investment has lower revenue, but higher earnings than American Homes 4 Rent. American Homes 4 Rent is trading at a lower price-to-earnings ratio than Two Harbors Investment, indicating that it is currently the more affordable of the two stocks.
American Homes 4 Rent beats Two Harbors Investment on 10 of the 16 factors compared between the two stocks.
About American Homes 4 Rent
American Homes 4 Rent is an internally managed real estate investment trust (REIT) focused on acquiring, renovating, leasing and operating single-family homes as rental properties. The Company’s primary objective is to generate attractive risk-adjusted returns for its shareholders through dividends and capital appreciation by acquiring, renovating, leasing and operating single-family homes as rental properties. As of December 31, 2016, it owned 48,422 single-family properties in 22 states, including 1,119 properties held for sale, and had an additional 47 properties in escrow that it intended to acquire. Its integrated operating platform offers property management, acquisitions, construction, marketing, leasing, financial and administrative functions. The Company may seek to invest in condominium units, townhouses and real estate-related debt investments. The Company is externally managed and advised by American Homes 4 Rent Advisor, LLC (the Advisor).
About Two Harbors Investment
Two Harbors Investment Corp. is a real estate investment trust. The Company is focused on investing in, financing and managing residential mortgage-backed securities (RMBS), mortgage servicing rights (MSR), commercial real estate and other financial assets (collectively known as target assets). Its investment objective is to provide attractive risk-adjusted total return to its stockholders over the long-term, primarily through dividends and secondarily through capital appreciation. The Company focuses on managing various associated risks, including interest rate, prepayment, credit, mortgage spread and financing risk. The Company finances its RMBS and commercial real estate assets through short- and long-term borrowings structured as repurchase agreements and advances from the Federal Home Loan Bank of Des Moines, or the FHLB. It also finances its MSR through revolving credit facilities.
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