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Ares Capital: This 9.1%-Yielding Top-Shelf BDC Just Raised Its Dividend

Aug. 03, 2018 9:47 AM ETAres Capital (ARCC)49 Comments
Achilles Research profile picture
Achilles Research


  • Ares Capital Corp. reported Q2-2018 results on Wednesday.
  • The BDC raised its dividend from $0.38/share to $0.39/share, reflecting an increase of 2.6 percent.
  • Ares Capital Corp. still has considerable interest rate upside.
  • Shares are affordable, selling for about net asset value.
  • An investment in ARCC yields 9.1 percent.

Ares Capital Corp. (NASDAQ:ARCC), one of the largest BDCs in the country, reported solid second quarter results yesterday and raised its quarterly dividend payout. Ares Capital Corp. reported stable net investment income and continued to cover its dividend payout. The business development company also has positive interest rate sensitivity, which could translate into NII growth in a rising rate environment. Shares sell for about net asset value now, but the risk-reward is still attractive. An investment in ARCC yields 9.1 percent.

Ares Capital Corp. released a solid deck of financials for Q2-2018 yesterday that sent the stock up by more than two percent. The business development company pulled in $0.38/share in net investment income compared to $0.29/share in NII in the year-ago quarter. Q2-2018 NII was also in line with consensus expectations.

Here's a snapshot of the BDC's second quarter accomplishments.

Source: Ares Capital Corp. Earnings Release

Ares Capital Corp. covered its second quarter dividend payout with net investment income. In the last twelve quarters, Ares Capital Corp. pulled in $0.37/share in net investment income, on average, which compares against a stable dividend rate of $0.38/share.

Here are Ares Capital Corp.'s dividend stats of the last three years.

Source: Achilles Research

Defensively-Positioned Investment Portfolio With Upside

Ares Capital Corp. largely invests in first and second lien senior secured loans, which together accounted for 70 percent of the business development company's investment portfolio at the end of the June quarter. These kinds of loans are relatively secure and provide income investors with downside protection in case the U.S. economy slides into a recession or the borrowers run into financial trouble.

Source: Ares Capital Corp. Investor Presentation

Importantly, Ares Capital Corp.'s investment portfolio has upside potential due to the fact that the majority of its debt investments are floating rate. A rising rate environment, therefore, will

ChartARCC Price to Book Value data by YCharts

This article was written by

Achilles Research profile picture
I am a dividend investor and look for undervalued investments in the stock market. I identify misunderstood and undervalued equity investments and hold those securities until their price approximates my estimate of intrinsic value. I am a long-term investor only. I am building a $100,000 high-yield income portfolio. I am running this portfolio as an experiment to see if long-term sustainable income can be generated from a diversified pool of high-risk, high-yield securities. I am willing to accept high risk in order to meet my performance goals.

Analyst’s Disclosure: I am/we are long ARCC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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