Head to Head Review: Redwood Trust (NYSE:RWT) vs. NexPoint Real Estate Finance (NYSE:NREF)

NexPoint Real Estate Finance (NYSE:NREF) and Redwood Trust (NYSE:RWT) are both small-cap finance companies, but which is the superior investment? We will compare the two companies based on the strength of their analyst recommendations, dividends, valuation, earnings, profitability, risk and institutional ownership.

Dividends

NexPoint Real Estate Finance pays an annual dividend of $2.00 per share and has a dividend yield of 11.9%. Redwood Trust pays an annual dividend of $0.72 per share and has a dividend yield of 14.1%. NexPoint Real Estate Finance pays out 76.3% 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 -92.3% of its earnings in the form of a dividend. Redwood Trust has increased its dividend for 1 consecutive years. Redwood Trust is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Valuation & Earnings

This table compares NexPoint Real Estate Finance and Redwood Trust”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
NexPoint Real Estate Finance	$89.95 million	3.52	$105.10 million	$2.62	6.42
Redwood Trust	$1.18 billion	0.54	-$70.03 million	($0.78)	-6.53

NexPoint Real Estate Finance has higher earnings, but lower revenue than Redwood Trust. Redwood Trust is trading at a lower price-to-earnings ratio than NexPoint Real Estate Finance, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares NexPoint Real Estate Finance and Redwood Trust’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
NexPoint Real Estate Finance	117.74%	13.14%	0.93%
Redwood Trust	-7.23%	14.53%	0.57%

Volatility & Risk

NexPoint Real Estate Finance has a beta of 1.11, indicating that its stock price is 11% more volatile than the S&P 500. Comparatively, Redwood Trust has a beta of 1.37, indicating that its stock price is 37% more volatile than the S&P 500.

Institutional & Insider Ownership

67.8% of NexPoint Real Estate Finance shares are owned by institutional investors. Comparatively, 74.3% of Redwood Trust shares are owned by institutional investors. 55.7% of NexPoint Real Estate Finance shares are owned by company insiders. Comparatively, 3.3% of Redwood Trust shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Analyst Ratings

This is a summary of recent recommendations for NexPoint Real Estate Finance and Redwood Trust, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
NexPoint Real Estate Finance	0	4	0	0	2.00
Redwood Trust	1	3	6	0	2.50

NexPoint Real Estate Finance presently has a consensus target price of $15.50, suggesting a potential downside of 7.84%. Redwood Trust has a consensus target price of $6.11, suggesting a potential upside of 19.87%. Given Redwood Trust’s stronger consensus rating and higher probable upside, analysts plainly believe Redwood Trust is more favorable than NexPoint Real Estate Finance.

Summary

Redwood Trust beats NexPoint Real Estate Finance on 10 of the 17 factors compared between the two stocks.

About NexPoint Real Estate Finance

NexPoint Real Estate Finance, Inc. operates as a commercial mortgage real estate investment trust in the United States. It focuses on originating, structuring, and investing in first-lien mortgage loans, mezzanine loans, preferred equity, convertible notes, multifamily properties, and common equity investments, as well as multifamily and single-family rental commercial mortgage-backed securities securitizations, multifamily structured credit risk notes, and mortgage-backed securities or target assets. The company has elected to be taxed as a real estate investment trust (REIT) and would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. NexPoint Real Estate Finance, Inc. was incorporated in 2019 and is based in Dallas, Texas.

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.