Analyzing State Street (STT) & Arlington Asset Investment (AI)

State Street (NYSE: STT) and Arlington Asset Investment (NYSE:AI) are both finance companies, but which is the superior investment? We will compare the two businesses based on the strength of their institutional ownership, valuation, risk, analyst recommendations, earnings, dividends and profitability.

Analyst Ratings

This is a breakdown of current ratings and target prices for State Street and Arlington Asset Investment, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
State Street 1 7 6 1 2.47
Arlington Asset Investment 0 1 2 0 2.67

State Street currently has a consensus price target of $101.21, suggesting a potential downside of 5.62%. Arlington Asset Investment has a consensus price target of $13.75, suggesting a potential upside of 15.45%. Given Arlington Asset Investment’s stronger consensus rating and higher possible upside, analysts clearly believe Arlington Asset Investment is more favorable than State Street.

Valuation & Earnings

This table compares State Street and Arlington Asset Investment’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
State Street $10.64 billion 3.74 $2.14 billion $5.77 18.59
Arlington Asset Investment $105.34 million 3.18 -$41.34 million ($1.46) -8.16

State Street has higher revenue and earnings than Arlington Asset Investment. Arlington Asset Investment is trading at a lower price-to-earnings ratio than State Street, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares State Street and Arlington Asset Investment’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
State Street 20.56% 13.03% 1.01%
Arlington Asset Investment -27.20% -8.36% -0.72%

Volatility & Risk

State Street has a beta of 1.36, meaning that its stock price is 36% more volatile than the S&P 500. Comparatively, Arlington Asset Investment has a beta of 1.06, meaning that its stock price is 6% more volatile than the S&P 500.

Dividends

State Street pays an annual dividend of $1.68 per share and has a dividend yield of 1.6%. Arlington Asset Investment pays an annual dividend of $2.20 per share and has a dividend yield of 18.5%. State Street pays out 29.1% of its earnings in the form of a dividend. Arlington Asset Investment pays out -150.7% 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. Arlington Asset Investment has raised its dividend for 7 consecutive years. Arlington Asset Investment is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Institutional and Insider Ownership

88.1% of State Street shares are owned by institutional investors. Comparatively, 37.8% of Arlington Asset Investment shares are owned by institutional investors. 0.7% of State Street shares are owned by company insiders. Comparatively, 5.9% of Arlington Asset Investment shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Summary

State Street beats Arlington Asset Investment on 12 of the 18 factors compared between the two stocks.

State Street Company Profile

State Street Corporation is a financial holding company. The Company operates through two lines of business: Investment Servicing and Investment Management. The Company, through its subsidiary, State Street Bank and Trust Company (State Street Bank), provides a range of financial products and services to institutional investors across the world. Investment servicing line of business performs functions, such as providing institutional investors with clearing, settlement and payment services. The Company operates investment management line of business through State Street Global Advisors (SSGA). SSGA provides a range of investment management, investment research and investment advisory services to corporations, public funds and other investors. Its clients include mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments and investment managers.

Arlington Asset Investment Company Profile

Arlington Asset Investment Corp. is an investment company. The Company focuses on acquiring and holding a levered portfolio of residential mortgage-backed securities (MBS), consisting of agency MBS and private-label MBS. Agency MBS include residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by a United States Government agency or government-sponsored enterprise (GSE), such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Private-label MBS, or non-agency MBS, include residential MBS that are not guaranteed by a GSE or the United States Government. The Company funds its investments primarily through short-term financing arrangements. The Company purchases agency MBS either in initial offerings or in the secondary market through broker-dealers or similar entities. It may invest in agency MBS collateralized by adjustable-rate mortgage loans (ARMs) or hybrid ARMs.

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