Critical Review: MTGE Investment (MTGE) versus Dynex Capital (DX)

MTGE Investment (NASDAQ: MTGE) and Dynex Capital (NYSE:DX) are both small-cap financials companies, but which is the better business? We will contrast the two businesses based on the strength of their profitability, dividends, institutional ownership, earnings, valuation, risk and analyst recommendations.

Dividends

MTGE Investment pays an annual dividend of $2.00 per share and has a dividend yield of 11.1%. Dynex Capital pays an annual dividend of $0.72 per share and has a dividend yield of 11.1%. MTGE Investment pays out 58.5% of its earnings in the form of a dividend. Dynex Capital pays out 163.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. MTGE Investment is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares MTGE Investment and Dynex Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
MTGE Investment 177.04% 10.44% 1.66%
Dynex Capital 35.86% 11.04% 1.33%

Analyst Recommendations

This is a breakdown of current ratings and target prices for MTGE Investment and Dynex Capital, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
MTGE Investment 0 1 3 0 2.75
Dynex Capital 0 1 1 0 2.50

MTGE Investment currently has a consensus target price of $20.50, indicating a potential upside of 14.21%. Dynex Capital has a consensus target price of $7.25, indicating a potential upside of 11.37%. Given MTGE Investment’s stronger consensus rating and higher possible upside, equities research analysts plainly believe MTGE Investment is more favorable than Dynex Capital.

Insider & Institutional Ownership

71.0% of MTGE Investment shares are owned by institutional investors. Comparatively, 53.3% of Dynex Capital shares are owned by institutional investors. 1.1% of MTGE Investment shares are owned by insiders. Comparatively, 7.1% of Dynex Capital shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Valuation and Earnings

This table compares MTGE Investment and Dynex Capital’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
MTGE Investment $91.12 million 9.02 $161.32 million $3.42 5.25
Dynex Capital $94.50 million 3.85 $33.89 million $0.44 14.80

MTGE Investment has higher earnings, but lower revenue than Dynex Capital. MTGE Investment is trading at a lower price-to-earnings ratio than Dynex Capital, indicating that it is currently the more affordable of the two stocks.

Risk and Volatility

MTGE Investment has a beta of 0.26, meaning that its stock price is 74% less volatile than the S&P 500. Comparatively, Dynex Capital has a beta of 0.71, meaning that its stock price is 29% less volatile than the S&P 500.

Summary

MTGE Investment beats Dynex Capital on 11 of the 16 factors compared between the two stocks.

MTGE Investment Company Profile

MTGE Investment Corp., formerly American Capital Mortgage Investment Corp., is a real estate investment trust. The Company invests in, finances and manages a leveraged portfolio of real estate-related investments, which include agency residential mortgage-backed securities (RMBS), non-agency securities, other mortgage-related investments and other real estate investments. Agency RMBS includes residential mortgage pass-through certificates and collateralized mortgage obligations (CMOs) structured from residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by a government-sponsored enterprise (GSE), or by a United States Government agency, such as Government National Mortgage Association (Ginnie Mae). Non-agency securities include securities backed by residential mortgages that are not guaranteed by a GSE or the United States Government agency, and credit risk transfer securities (CRT). The Company’s manager is MTGE Management, LLC.

Dynex Capital Company Profile

Dynex Capital, Inc. is an internally managed mortgage real estate investment trust, which invests in residential and commercial mortgage securities on a leveraged basis. The Company’s objective is to provide attractive risk-adjusted returns to its shareholders over the long term that is reflective of a leveraged fixed income portfolio with a focus on capital preservation. It seeks to provide returns to its shareholders through regular quarterly dividends and through capital appreciation. It invests in Agency and non-Agency mortgage-backed securities (MBS). MBS consists of residential MBS (RMBS), commercial MBS (CMBS) and CMBS interest-only securities. Agency MBS have a guaranty of principal payment by an agency of the United States Government or a government-sponsored entity (GSE), such as Fannie Mae and Freddie Mac.

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