Critical Review: MFA Financial (NYSE:MFA) and Chimera Investment (NYSE:CIM)

Chimera Investment (NYSE:CIM) and MFA Financial (NYSE:MFA) are both small-cap finance companies, but which is the better stock? We will contrast the two companies based on the strength of their institutional ownership, profitability, dividends, valuation, analyst recommendations, risk and earnings.

Earnings & Valuation

This table compares Chimera Investment and MFA Financial”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Chimera Investment	$286.07 million	4.30	$126.10 million	$1.53	10.00
MFA Financial	$229.72 million	5.42	$80.16 million	($0.08)	-152.38

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

Analyst Ratings

This is a breakdown of current recommendations and price targets for Chimera Investment and MFA Financial, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Chimera Investment	0	2	0	0	2.00
MFA Financial	0	1	4	0	2.80

Chimera Investment presently has a consensus target price of $16.25, indicating a potential upside of 6.21%. MFA Financial has a consensus target price of $13.40, indicating a potential upside of 9.93%. Given MFA Financial’s stronger consensus rating and higher possible upside, analysts plainly believe MFA Financial is more favorable than Chimera Investment.

Dividends

Chimera Investment pays an annual dividend of $1.48 per share and has a dividend yield of 9.7%. MFA Financial pays an annual dividend of $1.40 per share and has a dividend yield of 11.5%. Chimera Investment pays out 96.7% 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 pays out -1,750.0% of its earnings in the form of a dividend. MFA Financial is clearly the better dividend stock, given its higher yield and lower payout ratio.

Volatility & Risk

Chimera Investment has a beta of 1.73, indicating that its stock price is 73% more volatile than the S&P 500. Comparatively, MFA Financial has a beta of 2.16, indicating that its stock price is 116% more volatile than the S&P 500.

Institutional and Insider Ownership

48.4% of Chimera Investment shares are held by institutional investors. Comparatively, 65.3% of MFA Financial shares are held by institutional investors. 0.9% of Chimera Investment shares are held by insiders. Comparatively, 0.7% of MFA Financial shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company will outperform the market over the long term.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Chimera Investment	28.79%	7.66%	1.54%
MFA Financial	14.22%	10.02%	1.76%

Summary

MFA Financial beats Chimera Investment on 10 of the 16 factors compared between the two stocks.

About Chimera Investment

Chimera Investment Corporation operates as a real estate investment trust (REIT) in the United States. The company, through its subsidiaries, invests in a portfolio of mortgage assets, including residential mortgage loans, agency residential mortgage-backed securities, non-agency residential mortgage-backed securities, agency mortgage-backed securities secured by pools of commercial mortgage loans, business purpose and investor loans, and other real estate related securities. It invests in investment grade, non-investment grade, and non-rated classes. 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. Chimera Investment Corporation was incorporated in 2007 and is headquartered in New York, New York.

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.