Redwood Trust (NYSE:RWT) and KKR Real Estate Finance Trust (NYSE:KREF) Critical Contrast

KKR Real Estate Finance Trust (NYSE:KREF) and Redwood Trust (NYSE:RWT) are both small-cap finance companies, but which is the superior business? We will contrast the two businesses based on the strength of their risk, institutional ownership, valuation, profitability, earnings, analyst recommendations and dividends.

Profitability

This table compares KKR Real Estate Finance Trust and Redwood Trust’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
KKR Real Estate Finance Trust	0.40%	9.46%	1.86%
Redwood Trust	9.35%	6.01%	0.43%

Risk and Volatility

KKR Real Estate Finance Trust has a beta of 0.99, meaning that its stock price is 1% less volatile than the S&P 500. Comparatively, Redwood Trust has a beta of 1.59, meaning that its stock price is 59% more volatile than the S&P 500.

Dividends

KKR Real Estate Finance Trust pays an annual dividend of $1.00 per share and has a dividend yield of 8.6%. Redwood Trust pays an annual dividend of $0.68 per share and has a dividend yield of 9.6%. KKR Real Estate Finance Trust pays out -333.3% of its earnings in the form of a dividend. Redwood Trust pays out 123.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Insider & Institutional Ownership

70.2% of KKR Real Estate Finance Trust shares are held by institutional investors. Comparatively, 74.3% of Redwood Trust shares are held by institutional investors. 1.2% of KKR Real Estate Finance Trust shares are held by company insiders. Comparatively, 2.5% of Redwood Trust shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Valuation and Earnings

This table compares KKR Real Estate Finance Trust and Redwood Trust”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
KKR Real Estate Finance Trust	$640.41 million	1.26	-$30.85 million	($0.30)	-38.67
Redwood Trust	$724.00 million	1.30	-$2.27 million	$0.55	12.93

Redwood Trust has higher revenue and earnings than KKR Real Estate Finance Trust. KKR Real Estate Finance Trust is trading at a lower price-to-earnings ratio than Redwood Trust, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a summary of current ratings and price targets for KKR Real Estate Finance Trust and Redwood Trust, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
KKR Real Estate Finance Trust	0	0	6	0	3.00
Redwood Trust	0	3	5	1	2.78

KKR Real Estate Finance Trust presently has a consensus target price of $12.83, suggesting a potential upside of 10.63%. Redwood Trust has a consensus target price of $8.19, suggesting a potential upside of 15.25%. Given Redwood Trust’s higher probable upside, analysts clearly believe Redwood Trust is more favorable than KKR Real Estate Finance Trust.

Summary

Redwood Trust beats KKR Real Estate Finance Trust on 12 of the 17 factors compared between the two stocks.

About KKR Real Estate Finance Trust

KKR Real Estate Finance Trust Inc., a mortgage real estate investment trust, focuses primarily on originating and acquiring transitional senior loans secured by commercial real estate (CRE) assets. It engages in the origination and purchase of credit investments related to CRE, including leveraged and unleveraged commercial real estate loans. The company has elected to be taxed as a real estate investment trust and would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. KKR Real Estate Finance Trust Inc. was incorporated in 2014 and is headquartered in New York, New York.

About Redwood Trust

Redwood Trust, Inc., together with its subsidiaries, operates as a specialty finance company in the United States. The company operates through three segments: Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking, and Investment Portfolio. The Residential Consumer Mortgage Banking segment operates a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale, securitization, or transfer to its investment portfolio. This segment also offers derivative financial instruments to manage risks associated with residential loans. The Residential Investor Mortgage Banking segment operates a platform that originates business purpose loans to investors in single-family and multifamily residential properties and bridge loans for subsequent securitization, sale, or transfer into its investment portfolio. The Investment Portfolio segment invests in securities retained from residential consumer and investor securitization activities, and business purpose lending bridge loans, as well as residential mortgage-backed securities issued by third parties, Freddie Mac K-Series multifamily loan securitizations and reperforming loan securitizations, servicer advance investments, home equity investments, and other housing-related investments. The company is elected to be taxed as a real estate investment trust (REIT) for federal income tax purposes. Redwood Trust, Inc. was incorporated in 1994 and is headquartered in Mill Valley, California.