Critical Analysis: MFA Financial (NYSE:MFA) and AvalonBay Communities (NYSE:AVB)

MFA Financial (NYSE:MFA) and AvalonBay Communities (NYSE:AVB) are both finance companies, but which is the superior business? We will compare the two businesses based on the strength of their analyst recommendations, earnings, dividends, risk, institutional ownership, profitability and valuation.

Dividends

MFA Financial pays an annual dividend of $1.40 per share and has a dividend yield of 12.7%. AvalonBay Communities pays an annual dividend of $6.80 per share and has a dividend yield of 3.0%. MFA Financial pays out 88.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. AvalonBay Communities pays out 93.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. MFA Financial is clearly the better dividend stock, given its higher yield and lower payout ratio.

Institutional & Insider Ownership

65.3% of MFA Financial shares are held by institutional investors. Comparatively, 92.6% of AvalonBay Communities shares are held by institutional investors. 0.7% of MFA Financial shares are held by insiders. Comparatively, 0.4% of AvalonBay Communities shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Risk and Volatility

MFA Financial has a beta of 2.16, indicating that its stock price is 116% more volatile than the S&P 500. Comparatively, AvalonBay Communities has a beta of 0.97, indicating that its stock price is 3% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current ratings and price targets for MFA Financial and AvalonBay Communities, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
MFA Financial	0	1	4	0	2.80
AvalonBay Communities	0	11	7	0	2.39

MFA Financial presently has a consensus target price of $13.60, indicating a potential upside of 23.52%. AvalonBay Communities has a consensus target price of $226.88, indicating a potential downside of 1.07%. Given MFA Financial’s stronger consensus rating and higher possible upside, analysts plainly believe MFA Financial is more favorable than AvalonBay Communities.

Profitability

This table compares MFA Financial and AvalonBay Communities’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
MFA Financial	28.38%	9.97%	1.71%
AvalonBay Communities	36.20%	8.84%	4.98%

Valuation and Earnings

This table compares MFA Financial and AvalonBay Communities”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
MFA Financial	$605.60 million	1.86	$80.16 million	$1.59	6.92
AvalonBay Communities	$2.77 billion	11.79	$928.83 million	$7.31	31.37

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

Summary

AvalonBay Communities beats MFA Financial on 9 of the 16 factors compared between the two stocks.

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.

About AvalonBay Communities

As of December 31, 2023, the Company owned or held a direct or indirect ownership interest in 299 apartment communities containing 90,669 apartment homes in 12 states and the District of Columbia, of which 18 communities were under development. The Company is an equity REIT in the business of developing, redeveloping, acquiring and managing apartment communities in leading metropolitan areas in New England, the New York/New Jersey Metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California, as well as in the Company's expansion regions of Raleigh-Durham and Charlotte, North Carolina, Southeast Florida, Dallas and Austin, Texas, and Denver, Colorado.