Critical Contrast: MFA Financial (NYSE:MFA) vs. Ellington Financial (NYSE:EFC)

MFA Financial (NYSE:MFA) and Ellington Financial (NYSE:EFC) are both small-cap finance companies, but which is the superior business? We will compare the two companies based on the strength of their risk, valuation, analyst recommendations, dividends, earnings, institutional ownership and profitability.

Valuation & Earnings

This table compares MFA Financial and Ellington Financial”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
MFA Financial	$723.97 million	1.37	$119.25 million	$0.85	11.42
Ellington Financial	$136.41 million	10.92	$145.86 million	$1.34	10.35

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

Institutional & Insider Ownership

65.3% of MFA Financial shares are held by institutional investors. Comparatively, 55.6% of Ellington Financial shares are held by institutional investors. 0.8% of MFA Financial shares are held by insiders. Comparatively, 4.1% of Ellington Financial shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Risk & Volatility

MFA Financial has a beta of 1.61, suggesting that its share price is 61% more volatile than the S&P 500. Comparatively, Ellington Financial has a beta of 0.95, suggesting that its share price is 5% less volatile than the S&P 500.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
MFA Financial	17.51%	7.26%	1.14%
Ellington Financial	89.04%	14.55%	1.15%

Analyst Ratings

This is a breakdown of recent recommendations for MFA Financial and Ellington Financial, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
MFA Financial	1	3	3	0	2.29
Ellington Financial	0	3	5	0	2.63

MFA Financial presently has a consensus target price of $11.05, indicating a potential upside of 13.80%. Ellington Financial has a consensus target price of $14.46, indicating a potential upside of 4.20%. Given MFA Financial’s higher possible upside, equities analysts plainly believe MFA Financial is more favorable than Ellington Financial.

Dividends

MFA Financial pays an annual dividend of $1.44 per share and has a dividend yield of 14.8%. Ellington Financial pays an annual dividend of $1.56 per share and has a dividend yield of 11.2%. MFA Financial pays out 169.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Ellington Financial pays out 116.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. MFA Financial has increased its dividend for 1 consecutive years. MFA Financial is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Ellington Financial beats MFA Financial on 10 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 Ellington Financial

Ellington Financial Inc., through its subsidiary, Ellington Financial Operating Partnership LLC, acquires and manages mortgage-related, consumer-related, corporate-related, and other financial assets in the United States. The company acquires and manages residential mortgage-backed securities (RMBS) backed by prime jumbo, Alt-A, manufactured housing, and subprime mortgage; RMBS for which the principal and interest payments are guaranteed by the U.S. government agency or the U.S. government-sponsored entity; residential mortgage loans; commercial mortgage-backed securities; and commercial mortgage loans and other commercial real estate debt. It also provides collateralized loan obligations; mortgage-related and non-mortgage-related derivatives; corporate debt and equity securities; corporate loans; and other strategic investments; and consumer loans and asset-backed securities backed by consumer and commercial assets. The company qualifies as a real estate investment trust (REIT) for federal income tax purposes. As a REIT, it intends to distribute at least 90% of its taxable income as dividends to shareholders. Ellington Financial LLC was incorporated in 2007 and is headquartered in Old Greenwich, Connecticut.