Two Harbors Investments (NYSE:TWO) versus Lument Finance Trust (NYSE:LFT) Critical Review

Lument Finance Trust (NYSE:LFT) and Two Harbors Investments (NYSE:TWO) are both small-cap finance companies, but which is the better stock? We will compare the two companies based on the strength of their analyst recommendations, risk, profitability, valuation, dividends, institutional ownership and earnings.

Analyst Recommendations

This is a breakdown of recent ratings and price targets for Lument Finance Trust and Two Harbors Investments, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Lument Finance Trust	1	0	0	0	1.00
Two Harbors Investments	1	5	0	1	2.14

Two Harbors Investments has a consensus target price of $12.75, indicating a potential upside of 4.64%. Given Two Harbors Investments’ stronger consensus rating and higher possible upside, analysts clearly believe Two Harbors Investments is more favorable than Lument Finance Trust.

Profitability

This table compares Lument Finance Trust and Two Harbors Investments’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Lument Finance Trust	-18.00%	0.86%	0.12%
Two Harbors Investments	-6.09%	12.79%	1.44%

Dividends

Lument Finance Trust pays an annual dividend of $0.16 per share and has a dividend yield of 23.8%. Two Harbors Investments pays an annual dividend of $0.48 per share and has a dividend yield of 3.9%. Lument Finance Trust pays out -44.4% of its earnings in the form of a dividend. Two Harbors Investments pays out -64.9% 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. Lument Finance Trust has increased its dividend for 2 consecutive years and Two Harbors Investments has increased its dividend for 1 consecutive years. Lument Finance Trust is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Insider and Institutional Ownership

19.5% of Lument Finance Trust shares are held by institutional investors. Comparatively, 64.2% of Two Harbors Investments shares are held by institutional investors. 3.3% of Lument Finance Trust shares are held by company insiders. Comparatively, 0.7% of Two Harbors Investments shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Valuation and Earnings

This table compares Lument Finance Trust and Two Harbors Investments”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Lument Finance Trust	$79.00 million	0.45	-$2.74 million	($0.36)	-1.87
Two Harbors Investments	$366.65 million	3.49	-$454.30 million	($0.74)	-16.47

Lument Finance Trust has higher earnings, but lower revenue than Two Harbors Investments. Two Harbors Investments is trading at a lower price-to-earnings ratio than Lument Finance Trust, indicating that it is currently the more affordable of the two stocks.

Volatility & Risk

Lument Finance Trust has a beta of 0.56, meaning that its share price is 44% less volatile than the S&P 500. Comparatively, Two Harbors Investments has a beta of 1.04, meaning that its share price is 4% more volatile than the S&P 500.

Summary

Two Harbors Investments beats Lument Finance Trust on 11 of the 17 factors compared between the two stocks.

About Lument Finance Trust

Lument Finance Trust, Inc., a real estate investment trust, focuses on investing in, financing, and managing a portfolio of commercial real estate (CRE) debt investments in the United States. The company primarily invests in transitional floating rate CRE mortgage loans on middle market multi-family assets; and other CRE -related investments, including mezzanine loans, preferred equity, commercial mortgage-backed securities, fixed rate loans, construction loans, and other CRE debt instruments. Lument Finance Trust, Inc. is qualified as a real estate investment trust (REIT) under the Internal Revenue Code of 1986. As a REIT, it would not be subject to federal income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was formerly known as Hunt Companies Finance Trust, Inc. and changed its name to Lument Finance Trust, Inc. in December 2020. Lument Finance Trust, Inc. was incorporated in 2012 and is headquartered in New York, New York.

About Two Harbors Investments

Two Harbors Investment Corp. invests in, finances, and manages mortgage servicing rights (MSRs), agency residential mortgage-backed securities (RMBS), and other financial assets through RoundPoint in the United States. The company target assets include agency RMBS collateralized by fixed rate mortgage loans, adjustable rate mortgage loans, hybrid mortgage loans, or derivatives; and other assets, such as financial and mortgage-related assets, including non-agency securities and non-hedging transactions. It qualifies as a REIT for federal income tax purposes. As a REIT, the company must distribute at least 90% of annual taxable income to its stockholders. Two Harbors Investment Corp. was incorporated in 2009 and is headquartered in St. Louis Park, Minnesota.