Critical Review: Annaly Capital Management (NYSE:NLY) and ARMOUR Residential REIT (NYSE:ARR)

ARMOUR Residential REIT (NYSE:ARR) and Annaly Capital Management (NYSE:NLY) are both finance companies, but which is the superior stock? We will contrast the two companies based on the strength of their dividends, earnings, valuation, risk, profitability, institutional ownership and analyst recommendations.

Analyst Recommendations

This is a breakdown of recent recommendations and price targets for ARMOUR Residential REIT and Annaly Capital Management, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
ARMOUR Residential REIT	0	4	0	0	2.00
Annaly Capital Management	0	2	6	0	2.75

ARMOUR Residential REIT presently has a consensus price target of $19.83, suggesting a potential downside of 2.87%. Annaly Capital Management has a consensus price target of $21.14, suggesting a potential upside of 5.98%. Given Annaly Capital Management’s stronger consensus rating and higher probable upside, analysts plainly believe Annaly Capital Management is more favorable than ARMOUR Residential REIT.

Earnings and Valuation

This table compares ARMOUR Residential REIT and Annaly Capital Management’s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
ARMOUR Residential REIT	-$98.51 million	-10.11	-$67.92 million	($0.72)	-28.36
Annaly Capital Management	-$316.59 million	-31.54	-$1.64 billion	($0.97)	-20.57

ARMOUR Residential REIT has higher revenue and earnings than Annaly Capital Management. ARMOUR Residential REIT is trading at a lower price-to-earnings ratio than Annaly Capital Management, indicating that it is currently the more affordable of the two stocks.

Dividends

ARMOUR Residential REIT pays an annual dividend of $2.88 per share and has a dividend yield of 14.1%. Annaly Capital Management pays an annual dividend of $2.60 per share and has a dividend yield of 13.0%. ARMOUR Residential REIT pays out -400.0% of its earnings in the form of a dividend. Annaly Capital Management pays out -268.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. ARMOUR Residential REIT is clearly the better dividend stock, given its higher yield and lower payout ratio.

Institutional & Insider Ownership

54.2% of ARMOUR Residential REIT shares are held by institutional investors. Comparatively, 51.6% of Annaly Capital Management shares are held by institutional investors. 0.4% of ARMOUR Residential REIT shares are held by insiders. Comparatively, 0.2% of Annaly Capital Management shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Profitability

This table compares ARMOUR Residential REIT and Annaly Capital Management’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
ARMOUR Residential REIT	-19.85%	16.64%	1.69%
Annaly Capital Management	-12.02%	15.24%	1.60%

Volatility & Risk

ARMOUR Residential REIT has a beta of 1.51, suggesting that its stock price is 51% more volatile than the S&P 500. Comparatively, Annaly Capital Management has a beta of 1.53, suggesting that its stock price is 53% more volatile than the S&P 500.

Summary

ARMOUR Residential REIT beats Annaly Capital Management on 10 of the 16 factors compared between the two stocks.

About ARMOUR Residential REIT

ARMOUR Residential REIT, Inc. invests in residential mortgage-backed securities (MBS) in the United States. Its securities portfolio primarily consists of the United States Government-sponsored entity's (GSE) and the Government National Mortgage Administration's issued or guaranteed securities backed by fixed rate, hybrid adjustable rate, and adjustable-rate home loans; and unsecured notes and bonds issued by the GSE and the United States treasuries, as well as money market instruments. The company has elected to be taxed as a real estate investment trust. As a result, it would not be subject to corporate income tax on that portion of its net income that is distributed to shareholders. ARMOUR Residential REIT, Inc. was incorporated in 2008 and is based in Vero Beach, Florida.

About Annaly Capital Management

Annaly Capital Management, Inc., a diversified capital manager, engages in mortgage finance. The company invests in agency mortgage-backed securities collateralized by residential mortgages; non-agency residential whole loans and securitized products within the residential and commercial markets; mortgage servicing rights; agency commercial mortgage-backed securities; to-be-announced forward contracts; residential mortgage loans; and agency or private label credit risk transfer securities. It has elected to be taxed as a real estate investment trust (REIT). As a REIT, it is not subject to federal income tax to the extent that it distributes its taxable income to its shareholders. The company was incorporated in 1996 and is based in New York, New York.