Critical Analysis: Redwood Trust (NYSE:RWT) & Angel Oak Mortgage REIT (NYSE:AOMR)

Angel Oak Mortgage REIT (NYSE:AOMR) and Redwood Trust (NYSE:RWT) are both small-cap finance companies, but which is the superior investment? We will compare the two businesses based on the strength of their earnings, risk, dividends, profitability, analyst recommendations, institutional ownership and valuation.

Dividends

Angel Oak Mortgage REIT pays an annual dividend of $1.28 per share and has a dividend yield of 13.6%. Redwood Trust pays an annual dividend of $0.72 per share and has a dividend yield of 12.5%. Angel Oak Mortgage REIT pays out 83.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Redwood Trust pays out -112.5% of its earnings in the form of a dividend. Redwood Trust has raised its dividend for 1 consecutive years.

Earnings & Valuation

This table compares Angel Oak Mortgage REIT and Redwood Trust”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Angel Oak Mortgage REIT	$110.43 million	2.03	$28.75 million	$1.54	6.12
Redwood Trust	$150.66 million	4.94	$54.00 million	($0.64)	-8.99

Redwood Trust has higher revenue and earnings than Angel Oak Mortgage REIT. Redwood Trust is trading at a lower price-to-earnings ratio than Angel Oak Mortgage REIT, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a breakdown of current recommendations and price targets for Angel Oak Mortgage REIT and Redwood Trust, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Angel Oak Mortgage REIT	0	2	4	0	2.67
Redwood Trust	0	2	4	0	2.67

Angel Oak Mortgage REIT currently has a consensus price target of $11.60, suggesting a potential upside of 22.99%. Redwood Trust has a consensus price target of $6.88, suggesting a potential upside of 19.46%. Given Angel Oak Mortgage REIT’s higher possible upside, equities analysts plainly believe Angel Oak Mortgage REIT is more favorable than Redwood Trust.

Insider & Institutional Ownership

80.2% of Angel Oak Mortgage REIT shares are held by institutional investors. Comparatively, 74.3% of Redwood Trust shares are held by institutional investors. 2.9% of Angel Oak Mortgage REIT shares are held by insiders. Comparatively, 2.7% of Redwood Trust shares are held 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.

Volatility & Risk

Angel Oak Mortgage REIT has a beta of 1.38, meaning that its share price is 38% more volatile than the S&P 500. Comparatively, Redwood Trust has a beta of 1.37, meaning that its share price is 37% more volatile than the S&P 500.

Profitability

This table compares Angel Oak Mortgage REIT and Redwood Trust’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Angel Oak Mortgage REIT	29.42%	4.78%	0.49%
Redwood Trust	-6.93%	8.70%	0.49%

Summary

Angel Oak Mortgage REIT beats Redwood Trust on 8 of the 14 factors compared between the two stocks.

About Angel Oak Mortgage REIT

Angel Oak Mortgage REIT, Inc., a real estate finance company, focuses on acquiring and investing in first lien non- qualified mortgage loans and other mortgage-related assets in the United States mortgage market. It offers investment securities; residential mortgage loans; and commercial mortgage loans. The company qualifies as a real estate investment trust for federal income tax purposes. It generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was incorporated in 2018 and is headquartered in Atlanta, Georgia.

About Redwood Trust

Redwood Trust, Inc., together with its subsidiaries, operates as a specialty finance company in the United States. The company operates through three segments: Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking, and Investment Portfolio. The Residential Consumer Mortgage Banking segment operates a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale, securitization, or transfer to its investment portfolio. This segment also offers derivative financial instruments to manage risks associated with residential loans. The Residential Investor Mortgage Banking segment operates a platform that originates business purpose loans to investors in single-family and multifamily residential properties and bridge loans for subsequent securitization, sale, or transfer into its investment portfolio. The Investment Portfolio segment invests in securities retained from residential consumer and investor securitization activities, and business purpose lending bridge loans, as well as residential mortgage-backed securities issued by third parties, Freddie Mac K-Series multifamily loan securitizations and reperforming loan securitizations, servicer advance investments, home equity investments, and other housing-related investments. The company is elected to be taxed as a real estate investment trust (REIT) for federal income tax purposes. Redwood Trust, Inc. was incorporated in 1994 and is headquartered in Mill Valley, California.