Critical Survey: Orchid Island Capital (NYSE:ORC) vs. Invesco Mortgage Capital (NYSE:IVR)

Orchid Island Capital (NYSE:ORC) and Invesco Mortgage Capital (NYSE:IVR) are both small-cap finance companies, but which is the superior investment? We will compare the two businesses based on the strength of their profitability, valuation, risk, earnings, analyst recommendations, dividends and institutional ownership.

Dividends

Orchid Island Capital pays an annual dividend of $1.44 per share and has a dividend yield of 20.0%. Invesco Mortgage Capital pays an annual dividend of $1.44 per share and has a dividend yield of 17.2%. Orchid Island Capital pays out 138.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Invesco Mortgage Capital pays out 112.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Orchid Island Capital has raised its dividend for 1 consecutive years. Orchid Island Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Volatility and Risk

Orchid Island Capital has a beta of 1.63, meaning that its share price is 63% more volatile than the S&P 500. Comparatively, Invesco Mortgage Capital has a beta of 1.72, meaning that its share price is 72% more volatile than the S&P 500.

Valuation & Earnings

This table compares Orchid Island Capital and Invesco Mortgage Capital”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Orchid Island Capital	$414.00 million	3.40	$159.03 million	$1.04	6.92
Invesco Mortgage Capital	$119.84 million	6.08	$101.28 million	$1.28	6.55

Orchid Island Capital has higher revenue and earnings than Invesco Mortgage Capital. Invesco Mortgage Capital is trading at a lower price-to-earnings ratio than Orchid Island Capital, indicating that it is currently the more affordable of the two stocks.

Insider & Institutional Ownership

32.7% of Orchid Island Capital shares are held by institutional investors. Comparatively, 40.5% of Invesco Mortgage Capital shares are held by institutional investors. 0.4% of Orchid Island Capital shares are held by company insiders. Comparatively, 0.2% of Invesco Mortgage Capital shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Profitability

This table compares Orchid Island Capital and Invesco Mortgage Capital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Orchid Island Capital	N/A	8.31%	0.98%
Invesco Mortgage Capital	34.30%	28.85%	2.84%

Analyst Ratings

This is a breakdown of current recommendations and price targets for Orchid Island Capital and Invesco Mortgage Capital, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Orchid Island Capital	1	2	0	0	1.67
Invesco Mortgage Capital	0	3	1	0	2.25

Orchid Island Capital currently has a consensus target price of $7.50, indicating a potential upside of 4.24%. Invesco Mortgage Capital has a consensus target price of $8.25, indicating a potential downside of 1.61%. Given Orchid Island Capital’s higher possible upside, research analysts clearly believe Orchid Island Capital is more favorable than Invesco Mortgage Capital.

Summary

Invesco Mortgage Capital beats Orchid Island Capital on 10 of the 17 factors compared between the two stocks.

About Orchid Island Capital

Orchid Island Capital, Inc., a specialty finance company, invests in residential mortgage-backed securities (RMBS) in the United States. The company’s RMBS is backed by single-family residential mortgage loans, referred as Agency RMBS. Its portfolio includes traditional pass-through Agency RMBS, such as mortgage pass through certificates and collateralized mortgage obligations; and structured Agency RMBS comprising interest only securities, inverse interest only securities, and principal only securities. The company has elected to be taxed as a real estate investment trust (REIT) for the United States federal income tax purposes. As a result, it would not be subject to corporate income tax on that portion of its net income that is distributed to stockholders, if it annually distributes dividends equal to at least 90% of its REIT taxable income to its stockholders. Orchid Island Capital, Inc. was incorporated in 2010 and is headquartered in Vero Beach, Florida.

About Invesco Mortgage Capital

Invesco Mortgage Capital Inc. operates as a real estate investment trust (REIT) that invests, finances, and manages mortgage-backed securities and other mortgage-related assets in the United States. It invests in residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS) that are guaranteed by a U.S. government agency or federally chartered corporation; RMBS and CMBS that are not issued or guaranteed by the United States government agency or federally chartered corporation; the United States treasury securities; real estate-related financing arrangements; to-be-announced securities forward contracts to purchase RMBS; and commercial mortgage loans. It has elected to be taxed as a REIT and would 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 2008 and is headquartered in Atlanta, Georgia.