We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Orchid vs. Starwood: Which Mortgage REIT Has Better Upside?
Read MoreHide Full Article
Key Takeaways
ORC focuses on Agency RMBS, offering high yield and less credit risk, but is sensitive to interest rate.
STWD holds a diversified $1.02B portfolio, but its $18.4B debt overshadows asset gains and stable income.
ORC trades at a lower P/E than industry, with analyst-upgraded earnings forecasts for both 2025 and 2026.
Both Orchid Island Capital (ORC - Free Report) and Starwood Property Trust (STWD - Free Report) are mortgage REITs focused on generating income through real estate-related investments. While ORC specializes in agency residential mortgage-backed securities, STWD has a more diversified portfolio, including commercial real estate lending. Both are exposed to the same macroeconomic risks but differ in their portfolio strategies and risk profiles.
But which one offers the better opportunity for investors right now? Let us break down the strengths, risks and growth potential of ORC and STWD.
The Case for ORC
Orchid invests exclusively in Agency residential mortgage-backed securities (RMBS), including traditional pass-through securities and structured products issued by Fannie Mae, Freddie Mac and Ginnie Mae. This focus limits credit risks but increases sensitivity to interest rate movements and prepayments. Agency RMBS continue to offer attractive return potential, especially in a steady or declining rate environment. However, the market remains highly competitive, and success will depend heavily on ORC’s execution and risk management.
As mortgage rates are witnessing a declining trend lately, purchase originations and refinancing activities are improving. Hence, ORC will likely witness book value improvement in the coming period as spreads in the Agency market tighten, driving asset prices. This should also boost net interest spread, improving the portfolio's overall yield. This is expected to support the company’s financials in the upcoming period.
Orchid has a record of paying out regular dividends, currently yielding a staggering 20.4%. The company has increased its dividend three times over the past five years.
As of March 31, 2025, the company had $446.5 million in cash and cash equivalents and unpledged securities. It has no debt as of the same date. Given its strong liquidity, its capital distribution seems sustainable.
The Case for STWD
Starwood’s investment strategy includes investment in commercial mortgage-backed securities (CMBS) and related commercial real estate assets, with a diversified portfolio of $1.02 billion as of March 31, 2025. This allows it to generate stable income streams while capitalizing on market opportunities. The company’s asset management expertise and ability to navigate the complexities of the CMBS market will contribute to its strong market position and growth potential moving forward.
Starwood has been engaged in acquisitions and divestitures to optimize its portfolio. In February 2024, the company sold 16 retail properties in its Master Lease Portfolio for $387.1 million, recognizing a gain of $92 million. Additionally, it sold an operating property within its Real Estate Investment and Services Equity Portfolio for $18.2 million, with a gain of $8.3 million, reflecting continued portfolio optimization. The company also sold residential units in a New York conversion project, totaling $12.1 million in proceeds, though with no gain or loss recognized. Meanwhile, there were no significant acquisitions recently, aside from properties acquired through loan foreclosure. This strategy of selective sales and reinvestments supports the company's ongoing focus on enhancing its portfolio.
However, Starwood's weak liquidity position is concerning. As of March 31, 2025, the company had cash and cash equivalents of $692 million. Its long-term debt was $18.4 billion. This may create concerns if the macroeconomic situation worsens.
The company pays out a quarterly dividend of 48 cents currently. It has a dividend yield of 9.8%, with a payout ratio of 108%. Over the last five years, STWD has not increased its dividend.
In the past three months, STWD and ORC shares have risen 6.9% and 9.3%, respectively, compared with the industry’s growth of 6.2%.
Price Performance
Image Source: Zacks Investment Research
In terms of valuation, Orchid is currently trading at a 12-month forward price-to-earnings (P/E) of 0.79X, lower than its five-year median of 0.90X. Then again, the Starwood stock is currently trading at a 12-month forward P/E of 1.03X, which is lower than its five-year median of 1.04X.
Price-to-Earnings F12M
Image Source: Zacks Investment Research
STWD is trading at a premium compared with the industry average of 0.96X. while ORC is trading at a discount. Hence, ORC is a better choice for value investors.
How Do Estimates Compare for ORC & STWD?
The Zacks Consensus Estimate for Orchid’s 2025 and 2026 earnings indicates year-over-year increases of 450% and 39.7%, respectively. The Zacks Consensus Estimate for ORC’s 2025 and 2026 earnings has been revised upward over the past 30 days, suggesting a bullish outlook from analysts.
ORC Estimates Revision Trend
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Starwood’s 2025 earnings suggests a year-over-year decline of 8.9%, while that for 2026 implies a rise of 4.6%. The Zacks Consensus Estimate for STWD’s 2025 earnings has been revised upward over the past 30 days, while that for 2025 has been revised downward.
STWD Estimates Revision Trend
Image Source: Zacks Investment Research
ORC or STWD: Which Offers More Value?
While both Orchid and Starwood offer attractive dividend yields and operate in the same broader mREIT sector, ORC stands out as the more resilient and better-valued option for now. Its pure-play exposure to Agency RMBS, in a declining rate environment, positions it well for book value appreciation and improved spreads. With a massive 20.4% dividend yield, zero debt, strong liquidity and explosive earnings growth expectations, ORC offers both high income potential and capital upside.
In contrast, Starwood's heavy debt burden, modest dividend growth and weaker earnings outlook create concerns, especially in a volatile macroeconomic landscape.
For investors looking for stable income with lower risk, Orchid offers the more compelling opportunity right now.
Image: Bigstock
Orchid vs. Starwood: Which Mortgage REIT Has Better Upside?
Key Takeaways
Both Orchid Island Capital (ORC - Free Report) and Starwood Property Trust (STWD - Free Report) are mortgage REITs focused on generating income through real estate-related investments. While ORC specializes in agency residential mortgage-backed securities, STWD has a more diversified portfolio, including commercial real estate lending. Both are exposed to the same macroeconomic risks but differ in their portfolio strategies and risk profiles.
But which one offers the better opportunity for investors right now? Let us break down the strengths, risks and growth potential of ORC and STWD.
The Case for ORC
Orchid invests exclusively in Agency residential mortgage-backed securities (RMBS), including traditional pass-through securities and structured products issued by Fannie Mae, Freddie Mac and Ginnie Mae. This focus limits credit risks but increases sensitivity to interest rate movements and prepayments. Agency RMBS continue to offer attractive return potential, especially in a steady or declining rate environment. However, the market remains highly competitive, and success will depend heavily on ORC’s execution and risk management.
As mortgage rates are witnessing a declining trend lately, purchase originations and refinancing activities are improving. Hence, ORC will likely witness book value improvement in the coming period as spreads in the Agency market tighten, driving asset prices. This should also boost net interest spread, improving the portfolio's overall yield. This is expected to support the company’s financials in the upcoming period.
Orchid has a record of paying out regular dividends, currently yielding a staggering 20.4%. The company has increased its dividend three times over the past five years.
As of March 31, 2025, the company had $446.5 million in cash and cash equivalents and unpledged securities. It has no debt as of the same date. Given its strong liquidity, its capital distribution seems sustainable.
The Case for STWD
Starwood’s investment strategy includes investment in commercial mortgage-backed securities (CMBS) and related commercial real estate assets, with a diversified portfolio of $1.02 billion as of March 31, 2025. This allows it to generate stable income streams while capitalizing on market opportunities. The company’s asset management expertise and ability to navigate the complexities of the CMBS market will contribute to its strong market position and growth potential moving forward.
Starwood has been engaged in acquisitions and divestitures to optimize its portfolio. In February 2024, the company sold 16 retail properties in its Master Lease Portfolio for $387.1 million, recognizing a gain of $92 million. Additionally, it sold an operating property within its Real Estate Investment and Services Equity Portfolio for $18.2 million, with a gain of $8.3 million, reflecting continued portfolio optimization. The company also sold residential units in a New York conversion project, totaling $12.1 million in proceeds, though with no gain or loss recognized. Meanwhile, there were no significant acquisitions recently, aside from properties acquired through loan foreclosure. This strategy of selective sales and reinvestments supports the company's ongoing focus on enhancing its portfolio.
However, Starwood's weak liquidity position is concerning. As of March 31, 2025, the company had cash and cash equivalents of $692 million. Its long-term debt was $18.4 billion. This may create concerns if the macroeconomic situation worsens.
The company pays out a quarterly dividend of 48 cents currently. It has a dividend yield of 9.8%, with a payout ratio of 108%. Over the last five years, STWD has not increased its dividend.
ORC & STWD: Price Performance & Valuation Analysis
In the past three months, STWD and ORC shares have risen 6.9% and 9.3%, respectively, compared with the industry’s growth of 6.2%.
Price Performance
In terms of valuation, Orchid is currently trading at a 12-month forward price-to-earnings (P/E) of 0.79X, lower than its five-year median of 0.90X. Then again, the Starwood stock is currently trading at a 12-month forward P/E of 1.03X, which is lower than its five-year median of 1.04X.
Price-to-Earnings F12M
Image Source: Zacks Investment Research
STWD is trading at a premium compared with the industry average of 0.96X. while ORC is trading at a discount. Hence, ORC is a better choice for value investors.
How Do Estimates Compare for ORC & STWD?
The Zacks Consensus Estimate for Orchid’s 2025 and 2026 earnings indicates year-over-year increases of 450% and 39.7%, respectively. The Zacks Consensus Estimate for ORC’s 2025 and 2026 earnings has been revised upward over the past 30 days, suggesting a bullish outlook from analysts.
ORC Estimates Revision Trend
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Starwood’s 2025 earnings suggests a year-over-year decline of 8.9%, while that for 2026 implies a rise of 4.6%. The Zacks Consensus Estimate for STWD’s 2025 earnings has been revised upward over the past 30 days, while that for 2025 has been revised downward.
STWD Estimates Revision Trend
Image Source: Zacks Investment Research
ORC or STWD: Which Offers More Value?
While both Orchid and Starwood offer attractive dividend yields and operate in the same broader mREIT sector, ORC stands out as the more resilient and better-valued option for now. Its pure-play exposure to Agency RMBS, in a declining rate environment, positions it well for book value appreciation and improved spreads. With a massive 20.4% dividend yield, zero debt, strong liquidity and explosive earnings growth expectations, ORC offers both high income potential and capital upside.
In contrast, Starwood's heavy debt burden, modest dividend growth and weaker earnings outlook create concerns, especially in a volatile macroeconomic landscape.
For investors looking for stable income with lower risk, Orchid offers the more compelling opportunity right now.
At present, ORC and STWD carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.