Financial Analysis: ARMOUR Residential REIT (NYSE:ARR) versus American Assets Trust (NYSE:AAT)

American Assets Trust (NYSE:AAT) and ARMOUR Residential REIT (NYSE:ARR) are both small-cap finance companies, but which is the superior stock? We will contrast the two companies based on the strength of their valuation, risk, profitability, institutional ownership, analyst recommendations, dividends and earnings.

Institutional & Insider Ownership

90.4% of American Assets Trust shares are owned by institutional investors. Comparatively, 54.2% of ARMOUR Residential REIT shares are owned by institutional investors. 37.3% of American Assets Trust shares are owned by insiders. Comparatively, 0.4% of ARMOUR Residential REIT shares are owned 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.

Valuation and Earnings

This table compares American Assets Trust and ARMOUR Residential REIT”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
American Assets Trust	$441.16 million	3.86	$64.69 million	$0.91	30.70
ARMOUR Residential REIT	$552.90 million	1.95	-$67.92 million	$2.36	8.18

American Assets Trust has higher earnings, but lower revenue than ARMOUR Residential REIT. ARMOUR Residential REIT is trading at a lower price-to-earnings ratio than American Assets Trust, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for American Assets Trust and ARMOUR Residential REIT, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
American Assets Trust	0	2	0	0	2.00
ARMOUR Residential REIT	0	4	0	0	2.00

American Assets Trust currently has a consensus target price of $25.00, indicating a potential downside of 10.52%. ARMOUR Residential REIT has a consensus target price of $19.83, indicating a potential upside of 2.71%. Given ARMOUR Residential REIT’s higher probable upside, analysts plainly believe ARMOUR Residential REIT is more favorable than American Assets Trust.

Volatility and Risk

American Assets Trust has a beta of 1.29, suggesting that its stock price is 29% more volatile than the S&P 500. Comparatively, ARMOUR Residential REIT has a beta of 1.51, suggesting that its stock price is 51% more volatile than the S&P 500.

Dividends

American Assets Trust pays an annual dividend of $1.34 per share and has a dividend yield of 4.8%. ARMOUR Residential REIT pays an annual dividend of $2.88 per share and has a dividend yield of 14.9%. American Assets Trust pays out 147.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. ARMOUR Residential REIT pays out 122.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. ARMOUR Residential REIT is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares American Assets Trust and ARMOUR Residential REIT’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
American Assets Trust	12.76%	5.08%	1.89%
ARMOUR Residential REIT	24.17%	16.76%	1.74%

Summary

ARMOUR Residential REIT beats American Assets Trust on 8 of the 14 factors compared between the two stocks.

About American Assets Trust

American Assets Trust, Inc. is a full service, vertically integrated and self-administered real estate investment trust ("REIT"), headquartered in San Diego, California. The company has over 55 years of experience in acquiring, improving, developing and managing premier office, retail, and residential properties throughout the United States in some of the nation's most dynamic, high-barrier-to-entry markets primarily in Southern California, Northern California, Washington, Oregon, Texas and Hawaii. The company's office portfolio comprises approximately 4.1 million rentable square feet, and its retail portfolio comprises approximately 3.1 million rentable square feet. In addition, the company owns one mixed-use property (including approximately 94,000 rentable square feet of retail space and a 369-room all-suite hotel) and 2,110 multifamily units. In 2011, the company was formed to succeed to the real estate business of American Assets, Inc., a privately held corporation founded in 1967 and, as such, has significant experience, long-standing relationships and extensive knowledge of its core markets, submarkets and asset classes.

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.