Head to Head Analysis: Heritage Financial (NASDAQ:HFWA) vs. Waterstone Financial (NASDAQ:WSBF)

Heritage Financial (NASDAQ:HFWA) and Waterstone Financial (NASDAQ:WSBF) are both small-cap finance companies, but which is the superior investment? We will contrast the two businesses based on the strength of their institutional ownership, dividends, analyst recommendations, profitability, risk, earnings and valuation.

Valuation and Earnings

This table compares Heritage Financial and Waterstone Financial”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Heritage Financial	$335.97 million	2.84	$67.53 million	$1.96	14.33
Waterstone Financial	$202.47 million	1.65	$18.69 million	$1.33	13.60

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

Dividends

Heritage Financial pays an annual dividend of $0.96 per share and has a dividend yield of 3.4%. Waterstone Financial pays an annual dividend of $0.60 per share and has a dividend yield of 3.3%. Heritage Financial pays out 49.0% of its earnings in the form of a dividend. Waterstone Financial pays out 45.1% 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. Heritage Financial has raised its dividend for 14 consecutive years. Heritage Financial is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Institutional & Insider Ownership

78.3% of Heritage Financial shares are held by institutional investors. Comparatively, 62.7% of Waterstone Financial shares are held by institutional investors. 1.9% of Heritage Financial shares are held by insiders. Comparatively, 8.3% of Waterstone Financial shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Analyst Recommendations

This is a summary of recent ratings for Heritage Financial and Waterstone Financial, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Heritage Financial	0	4	2	0	2.33
Waterstone Financial	0	0	1	0	3.00

Heritage Financial presently has a consensus target price of $31.25, suggesting a potential upside of 11.25%. Given Heritage Financial’s higher possible upside, analysts clearly believe Heritage Financial is more favorable than Waterstone Financial.

Volatility & Risk

Heritage Financial has a beta of 0.53, indicating that its stock price is 47% less volatile than the S&P 500. Comparatively, Waterstone Financial has a beta of 0.81, indicating that its stock price is 19% less volatile than the S&P 500.

Profitability

This table compares Heritage Financial and Waterstone Financial’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Heritage Financial	20.10%	8.61%	1.10%
Waterstone Financial	12.08%	6.99%	1.07%

Summary

Heritage Financial beats Waterstone Financial on 13 of the 17 factors compared between the two stocks.

About Heritage Financial

Heritage Financial Corporation operates as the bank holding company for Heritage Bank that provides various financial services to small and medium sized businesses and individuals in the United States. It accepts various deposit products, such as noninterest demand deposits, interest bearing demand deposits, money market accounts, savings accounts, personal checking accounts, and certificates of deposit. The company’s loan portfolio includes commercial and industrial loans, owner-occupied and non-owner occupied commercial real estate loans, one-to-four family residential loans, real estate construction and land development loans, consumer loans, commercial business loans, lines of credit, term equipment financing, and term real estate loans, as well as commercial business loans to a range of businesses in industries that include real estate and rental and leasing, healthcare, accommodation and food services, retail trade, and construction. It also originates loans that are guaranteed by the U.S. Small Business Administration; and provides objective advice from trusted advisers. The company was formerly known as Heritage Financial Corporation, M.H.C. and changed its name to Heritage Financial Corporation in 1998. Heritage Financial Corporation was founded in 1927 and is headquartered in Olympia, Washington.

About Waterstone Financial

Waterstone Financial, Inc. operates as a bank holding company for WaterStone Bank SSB that provides various financial services to customers in southeastern Wisconsin, the United States. It operates in two segments, Community Banking and Mortgage Banking. The Community Banking segment offers consumer and business banking products and services, such as deposit and transactional solutions, including checking accounts, online banking and bill pay services, money transfer services, as well as credit, debit, and pre-paid cards; investable funds solutions comprising savings, money market deposits, individual retirement accounts, and certificates of deposit; residential mortgages, home equity loans and lines of credit, personal and installment loans, real estate financing, business loans, and business lines of credit; and fixed and variable annuities, insurance products, and trust and investment management accounts. It also provides transaction deposits, interest bearing transaction accounts, demand deposits, non-interest-bearing demand accounts, and time deposits; secured and unsecured lines; commercial real estate construction loans; term loans for working capital, inventory, and general corporate use; and personal term loans and investment services. The Mortgage Banking segment offers residential mortgage loans for the purpose of sale in the secondary market. It also invests in a portfolio of securities include mortgage-backed securities, government-sponsored and private-label enterprise bonds, collateralized mortgage and municipal obligations, and other debt securities. The company was formerly known as Wauwatosa Holdings, Inc. and changed its name to Waterstone Financial, Inc. in August 2008. The company was founded in 1921 and is based in Wauwatosa, Wisconsin.