Reviewing MFA Financial (NYSE:MFA) & ARMOUR Residential REIT (NYSE:ARR)

MFA Financial (NYSE:MFA) and ARMOUR Residential REIT (NYSE:ARR) are both small-cap finance companies, but which is the better stock? We will contrast the two businesses based on the strength of their institutional ownership, valuation, analyst recommendations, profitability, risk, dividends and earnings.

Profitability

This table compares MFA Financial and ARMOUR Residential REIT’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
MFA Financial	17.62%	8.61%	1.39%
ARMOUR Residential REIT	-4.55%	15.89%	1.64%

Volatility & Risk

MFA Financial has a beta of 1.7, indicating that its share price is 70% more volatile than the S&P 500. Comparatively, ARMOUR Residential REIT has a beta of 1.41, indicating that its share price is 41% more volatile than the S&P 500.

Dividends

MFA Financial pays an annual dividend of $1.44 per share and has a dividend yield of 16.1%. ARMOUR Residential REIT pays an annual dividend of $2.88 per share and has a dividend yield of 18.6%. MFA Financial pays out 165.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. ARMOUR Residential REIT pays out -1,200.0% of its earnings in the form of a dividend. MFA Financial has raised its dividend for 1 consecutive years. ARMOUR Residential REIT is clearly the better dividend stock, given its higher yield and lower payout ratio.

Insider and Institutional Ownership

65.3% of MFA Financial shares are owned by institutional investors. Comparatively, 54.2% of ARMOUR Residential REIT shares are owned by institutional investors. 0.8% of MFA Financial shares are owned by insiders. Comparatively, 0.2% of ARMOUR Residential REIT shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Valuation & Earnings

This table compares MFA Financial and ARMOUR Residential REIT”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
MFA Financial	$254.80 million	3.61	$119.25 million	$0.87	10.29
ARMOUR Residential REIT	$550.95 million	2.57	-$14.39 million	($0.24)	-64.46

MFA Financial has higher earnings, but lower revenue than ARMOUR Residential REIT. ARMOUR Residential REIT is trading at a lower price-to-earnings ratio than MFA Financial, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a summary of current ratings and recommmendations for MFA Financial and ARMOUR Residential REIT, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
MFA Financial	0	4	4	0	2.50
ARMOUR Residential REIT	1	5	1	0	2.00

MFA Financial presently has a consensus target price of $11.75, indicating a potential upside of 31.28%. ARMOUR Residential REIT has a consensus target price of $15.50, indicating a potential upside of 0.19%. Given MFA Financial’s stronger consensus rating and higher possible upside, research analysts plainly believe MFA Financial is more favorable than ARMOUR Residential REIT.

Summary

MFA Financial beats ARMOUR Residential REIT on 12 of the 17 factors compared between the two stocks.

About MFA Financial

MFA Financial, Inc., together with its subsidiaries, operates as a real estate investment trust in the United States. It invests in residential mortgage securities, including non-agency mortgage-backed securities, agency MBS, and credit risk transfer securities; residential whole loans, including purchased performing loans, purchased credit deteriorated, and non-performing loans; and mortgage servicing rights related assets. The company was incorporated in 1997 and is based in New York, New York.

About ARMOUR Residential REIT

ARMOUR Residential REIT, Inc. invests in residential mortgage-backed securities (MBS) in the United States. Its securities portfolio primarily consists of the United States Government-sponsored entity's (GSE) and the Government National Mortgage Administration's issued or guaranteed securities backed by fixed rate, hybrid adjustable rate, and adjustable-rate home loans; and unsecured notes and bonds issued by the GSE and the United States treasuries, as well as money market instruments. The company has elected to be taxed as a real estate investment trust. As a result, it would not be subject to corporate income tax on that portion of its net income that is distributed to shareholders. ARMOUR Residential REIT, Inc. was incorporated in 2008 and is based in Vero Beach, Florida.