Reviewing United Development Funding IV (OTCMKTS:UDFI) & Two Harbors Investment (OTCMKTS:TWO)

Two Harbors Investment (NYSE:TWO) and United Development Funding IV (OTCMKTS:UDFI) are both finance companies, but which is the superior business? We will compare the two businesses based on the strength of their valuation, earnings, institutional ownership, risk, dividends, analyst recommendations and profitability.

Analyst Ratings

This is a breakdown of current recommendations for Two Harbors Investment and United Development Funding IV, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Two Harbors Investment 0 3 5 0 2.63
United Development Funding IV 0 0 0 0 N/A

Two Harbors Investment presently has a consensus target price of $15.88, indicating a potential upside of 20.36%. Given Two Harbors Investment’s higher probable upside, equities research analysts plainly believe Two Harbors Investment is more favorable than United Development Funding IV.

Dividends

Two Harbors Investment pays an annual dividend of $1.60 per share and has a dividend yield of 12.1%. United Development Funding IV does not pay a dividend. Two Harbors Investment pays out 81.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Two Harbors Investment has raised its dividend for 2 consecutive years.

Earnings and Valuation

This table compares Two Harbors Investment and United Development Funding IV’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Two Harbors Investment $870.03 million 4.14 -$44.29 million $1.97 6.70
United Development Funding IV N/A N/A N/A N/A N/A

United Development Funding IV has lower revenue, but higher earnings than Two Harbors Investment.

Profitability

This table compares Two Harbors Investment and United Development Funding IV’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Two Harbors Investment -35.93% 14.23% 1.72%
United Development Funding IV N/A N/A N/A

Volatility & Risk

Two Harbors Investment has a beta of 0.63, indicating that its share price is 37% less volatile than the S&P 500. Comparatively, United Development Funding IV has a beta of 0.74, indicating that its share price is 26% less volatile than the S&P 500.

Institutional and Insider Ownership

62.4% of Two Harbors Investment shares are owned by institutional investors. 0.9% of Two Harbors Investment shares are owned by insiders. Comparatively, 0.5% of United Development Funding IV shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Summary

Two Harbors Investment beats United Development Funding IV on 9 of the 12 factors compared between the two stocks.

About Two Harbors Investment

Two Harbors Investment Corp. operates as a real estate investment trust (REIT) that focuses on investing in, financing, and managing residential mortgage-backed securities (RMBS), non-agency securities, mortgage servicing rights, and other financial assets in the United States. Its target assets include agency RMBS collateralized by fixed rate mortgage loans, adjustable rate mortgage loans, and hybrid adjustable-rate mortgage (ARMs); non-agency securities collateralized by prime mortgage loans, Alt-A mortgage loans, pay-option ARM loans, and subprime mortgage loans; and other assets, such as financial and mortgage-related assets, as well as residential mortgage loans and non-hedging transactions. The company qualifies as a REIT for federal income tax purposes. As a REIT, the company would not be subject to federal income tax, if it distributes at least 90% of net taxable income to its stockholders. Two Harbors Investment Corp. was incorporated in 2009 and is headquartered in New York, New York.

About United Development Funding IV

United Development Funding IV invests in secured loans for the acquisition and development of land into single-family home lots, and the construction of model and new single-family homes. It also makes equity investments in residential real estate. 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. United Development Funding IV was founded in 2008 and is headquartered in Grapevine, Texas.

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