Ares Capital's NAV, Dividend, And Valuation Vs. 14 BDC Peers - Part 2 (Post Q3 2019 Earnings)

Summary

• Part 2 of this article compares ARCC's recent dividend per share rates, yield percentages, and several other highly unique dividend sustainability metrics to 14 BDC peers.
• This includes a comparative analysis of ARCC's cumulative undistributed taxable income ratio, percentage of floating-rate debt investments, recent weighted average annualized yield, and weighted average interest rate on outstanding borrowings.
• My current buy, sell, or hold recommendation, price target, and dividend sustainability projection for ARCC is stated in the "Conclusions Drawn” section of the article.
• My near-term dividend sustainability projection for the 14 other BDC peers within this analysis also is stated in the Conclusions Drawn section of the article (valuable information for readers).
• This idea was discussed in more depth with members of my private investing community, The REIT Forum. Get started today »

Focus of Article:

The focus of this two-part article is a very detailed analysis comparing Ares Capital Corp. (NASDAQ:ARCC) to some of the company's business development company ("BDC") peers (all sector peers I currently cover). I'm writing this two-part article due to the continued requests that such an analysis be specifically performed on ARCC and some of the company's BDC peers at periodic intervals. For readers who just want the summarized conclusions/results, I would suggest to scroll down to the "Conclusions Drawn" section at the bottom of each part of the article.

PART 1 of this article analyzed ARCC's recent quarterly results and compared several of the company's metrics to fourteen business development company ("BDC") peers. Part 1 helps lead to a better understanding of the topics and analysis that will be discussed in Part 2. The link to Part 1's analysis is provided below:

Ares Capital's NAV, Dividend, And Valuation Vs. 13 BDC Peers (Post Q3 2019 Earnings, Including Current Price Target)

Part 2 of this article compares ARCC's recent dividend per share rates, yield percentages, and several other highly unique dividend sustainability metrics to 14 BDC peers. This analysis will show recent past data with supporting documentation within Table 3 below. This article also will project each company's near-term dividend sustainability which is partially based on the metrics shown in Table 3 and several additional metrics shown in Table 4 below.

By analyzing these metrics, one will better understand which BDC generally has a safer dividend rate going forward vs. other peers who have a higher risk for a dividend decrease or a higher probability of a dividend increase and/or a special periodic dividend being declared. This is not the only data that should be examined to initiate a position within a particular stock/sector or project future dividend per share rates. However, I believe this analysis would be a good "starting-point" to begin a discussion on the topic. At the end of this article, there will be a conclusion regarding various comparisons between ARCC and the 14 BDC peers. In addition, I will provide my current buy, sell, or hold recommendation and price target on ARCC. I will also include my near-term dividend sustainability projection and current buy, sell, or hold recommendation for the fourteen other BDC peers within this analysis.

Side Note: As of 12/6/2019, Gladstone Investment Corp. (GAIN) and TPG Specialty Lending Inc. (TSLX) had a stock price that "reset" lower regarding each company's special periodic dividend for the calendar fourth quarter of 2019. In other words, each company's "ex-dividend date" regarding their special periodic dividend has occurred.

ARCC, Apollo Investment Corp. (AINV), FS KKR Capital Corp. (FSK), GAIN, Golub Capital BDC Inc. (GBDC), Main Street Capital Corp. (MAIN), NEWTEK Business Services Corp. (NEWT), Oaktree Strategic Income Corp. (OCSI), Oaktree Specialty Lending Corp. (OCSL), PennantPark Floating Rate Capital Ltd. (PFLT), Prospect Capital Corp. (PSEC), Solar Capital Ltd. (SLRC), Blackrock TCP Capital Corp. (TCPC), and TSLX had stock prices that have not reset regarding each company's regular December 2019 monthly/quarterly dividend accrual. ARCC, MAIN, and GBDC also had stock prices that have not reset regarding each company's special periodic dividend for the calendar fourth quarter of 2019. Medley Capital Corp. (MCC) did not declare a dividend for the calendar fourth quarter of 2019. Readers should take this into consideration as the analysis is presented below.

Dividend Per Share Rates and Yield Percentages Analysis - Overview:

Let us start this analysis by first getting accustomed to the information provided in Table 3 below. This will be beneficial when comparing ARCC to the 14 BDC peers regarding quarterly dividend per share rates and yield percentages.

Table 3 - Dividend Per Share Rates and Yield Percentages

(Source: Table created entirely by myself, obtaining historical stock prices from Nasdaq and each company's dividend per share rates from the SEC's EDGAR Database)

Using Table 3 above as a reference, the following information is presented in regards to ARCC and fourteen BDC peers (see each corresponding column): 1) dividend per share rate for the calendar third quarter of 2019 (including any special periodic dividend); 2) stock price as of 9/6/2019; 3) trailing 12-month ("TTM") dividend yield (dividend per share rate from the calendar fourth quarter of 2018-third quarter of 2019 [includes all special periodic dividends]); 4) annual forward dividend yield based on the dividend per share rate for the calendar third quarter of 2019 using the stock price as of 9/6/2019 (for monthly dividend payers, the latest monthly dividend per share rate during the quarter); 5) annual forward dividend yield based on the dividend per share rate for the calendar third quarter of 2019 using the NAV as of 6/30/2019 (for monthly dividend payers, the latest monthly dividend per share rate during the quarter); 6) TTM dividend increase (decrease) percentage (for monthly dividend payers, dividend per share rate fluctuation from September 2018-September 2019); 7) dividend per share rate for the calendar fourth quarter of 2019 (including any special periodic dividend); 8) stock price as of 12/6/2019; 9) TTM dividend yield (dividend per share rate from the calendar first-fourth quarter of 2019 [includes all special periodic dividends]); 10) annual forward dividend yield based on the dividend per share rate for the calendar fourth quarter of 2019 using the stock price as of 12/6/2019 (for monthly dividend payers, the latest monthly dividend per share rate during the quarter); 11) annual forward dividend yield based on the dividend per share rate for the calendar fourth quarter of 2019 using the NAV as of 9/30/2019 (for monthly dividend payers, the latest monthly dividend per share rate during the quarter); and 12) TTM dividend increase (decrease) percentage (for monthly dividend payers, dividend per share rate fluctuation from December 2018-December 2019). Let us now begin the comparative analysis between ARCC and the fourteen BDC peers.

Analysis of ARCC:

Using Table 3 above as a reference, ARCC declared a dividend of $0.40 per share for the third quarter of 2019. This amount was unchanged when compared to the prior quarter. ARCC also declared a special periodic dividend of $0.02 for the third quarter of 2019. ARCC's stock price traded at $18.92 per share on 9/6/2019. When calculated, this was a TTM dividend yield (including special periodic dividends when applicable) of 8.72%, an annual forward yield to ARCC's stock price as of 9/6/2019 of 8.46%, and an annual forward yield to the company's NAV as of 6/30/2019 of 9.26%. When comparing each yield percentage to ARCC's BDC peers within this analysis, the company's TTM yield based on its stock price as of 9/6/2019 and annual forward yield based on its stock price as of 9/6/2019 were near average (less than 0.50% away vs. the mean) while its annual forward yield to the company's NAV as of 6/30/2019 was slightly above average (at or greater than 0.50% but less than 1.00% versus the mean).

When combining this type of data with various other analytical metrics, in November 2018 and July 2019 I correctly projected, within the following prior ARCC dividend sustainability articles, the company had a high probability of a dividend per share rate increase during 2019, including projecting a special period dividend which ultimately came to fruition:

Ares Capital's Detailed Dividend Sustainability Analysis (Includes 2019 Dividend Projections)

Ares Capital's Dividend Sustainability Through The First Half Of 2020 (Includes Special Periodic Dividend Projection)

To provide readers several additional, important metrics to consider regarding each BDC's dividend sustainability, Table 4 is provided below. Again, it should be noted there are additional dividend sustainability metrics that I perform for each company. However, those metrics are more elaborate in detail and require additional analysis/discussion which I believe is beyond the scope of this particular article. That type of analysis would be better suited when analyzing each company on a "standalone" basis vs. a comparison article. I have discussed some of these more elaborate metrics in prior ARCC, GAIN, MAIN, NEWT, OCSI, OCSL, PSEC, SLRC, and TSLX articles (see my profile page for links to prior articles regarding those companies).

Table 4 - Several Additional Dividend Sustainability Metrics (9/30/2019 Versus 9/30/2018)

(Source: Table created entirely by myself, partially using data obtained from the SEC's EDGAR Database [link provided below Table 3] MCC metrics as of 9/30/2019 were not available at the time this article was written. As such, all 9/30/2019 metrics were "carried over" from 6/30/2019).

Using Table 4 above as a reference, a very important metric to consider regarding a BDC's long-term dividend sustainability is each company's cumulative undistributable taxable income ("UTI") outstanding shares of common stock ratio (highly valuable "forward-looking" data). Cumulative UTI is "built up"/retained taxable income ("TI") in excess of previously paid dividend distributions since an entity's initial public offering ("IPO") or after the most recent tax year when an entity overdistributed its TI with no such surplus to offset the difference. This figure/metric has been covered, at length, in previous BDC dividend sustainability articles. To calculate this ratio, I take a company's cumulative UTI and divide this amount by its outstanding shares of common stock. The higher this ratio is, the more positive the results regarding a company's future dividend sustainability. Since most BDC peers have continued to gradually net increase their outstanding shares of common stock, this ratio shows if a company has been able to increase its cumulative UTI balance by a similar proportion.

ARCC had a cumulative UTI coverage of outstanding shares of common stock ratio of 0.98 as of 9/30/2019 (see blue reference "C"). When calculated, this was a 0.06 increase during the TTM. Simply put, ARCC continued to have a very attractive taxable income surplus to distribute over the foreseeable future. ARCC's ratio, both as of 9/30/2018 and 9/30/2019, was notably more attractive vs. the mean of 0.31 and 0.42 of the 15 BDC peers within this analysis, respectively. Only GAIN and TSLX had a higher ratio as of 9/30/2019. This remains a very positive catalyst/trend to consider and was the main reason ARRC has distributed special periodic dividends throughout 2019 and will likely distribute special periodic dividends during 2020.

In my opinion, another important metric to consider regarding a BDC's dividend sustainability is a company's weighted average annualized yield on its debt investments. ARCC had a weighted average annualized yield on the company's debt investments of 9.80% as of 9/30/2019 (see blue reference "D"). This percentage was slightly below the mean of 10.00% of the fifteen BDC peers within this analysis. ARCC's weighted average annualized yield on the company's debt investments decreased (0.50%) during the TTM without any material change in portfolio characteristics or notable rise in credit risk. This also should be seen as a "cautious"/negative factor/trend. This was consistent with the overall trend within the BDC sector due to the recent decrease in the U.S. London Interbank Offered Rate ("LIBOR") during 2019 (various debt investments still "reset" this past quarter). There also has been some 2019 "spread/yield compression" due to the recent suppression of long-term rates/yields. As I correctly pointed out two quarters ago, LIBOR across all tenors/maturities has recently begun to modestly decrease which will temporarily lower this metric across most BDC peers over the next several quarters to varying degrees. This notion has been taken into consideration when it comes to projected dividend per share rates and recommendation ranges provided toward the end of this article.

Over the TTM, only two of the 15 BDC peers within this analysis experienced a net increase in its weighted average annualized yield. One BDC peer was GAIN. However, GAIN's percentage as of 9/30/2019 is a bit of a "misnomer" as the vast majority of this recent increase was directly due to success fee income being accrued during the quarter from a recent exit of a portfolio investment, Alloy Die Casting Co. (Alloy Die Casting). Simply put, this particular income is sporadic in nature (non-recurring) and is tied to exits of certain portfolio companies. When excluding this event, GAIN's weighted average annualized yield decreased approximately (0.3%) this past quarter which better aligned with sector trends. The second BDC peer was OCSL. OCSL, taken over by OAK a couple years ago, has gradually been monetizing once-troubled legacy investments and deploying capital mainly in self-originated or syndicated middle-market ("MM") debt investments. As a direct result, OCSL has gradually been decreasing the company's proportionate share of lower-yielding/non-yield assets which directly increases its weighted average annualized yield.

The next metric shown in Table 4 above is each BDC's weighted average interest rate on all debt outstanding. ARCC had a weighted average interest rate of 4.02% on the company's outstanding borrowings as of 9/30/2019 (excludes commitment fees and loan issuance costs; see blue reference "E"). This compared to a weighted average interest rate of 4.19% as of 9/30/2018. When compared to the 14 BDC peers within this analysis, ARCC continued to have a slightly below average weighted average interest rate on all debt outstanding. As of 9/30/2019, 33.18% of ARCC's debt outstanding bore floating rates (credit facility) while 66.82% of the company's debt outstanding bore fixed rates (convertible and unsecured notes). I believe taking a "snapshot" of each BDC's weighted average interest rate on all debt outstanding allows readers to better understand which companies will experience generalized characteristics in the future (thus impacting future net investment income [NII]/TI).

The last metric shown in Table 4 is each BDC's proportion of debt investments with floating interest rates (additional forward-looking data). ARCC's proportion of debt investments with floating interest rates was 94.51% as of 9/30/2019 (see blue reference "F"). ARCC's percentage was more attractive, during the 2017-2018 rising interest rate environment, when compared to the mean of the 15 BDC peers within this analysis of 89.26%. This was one reason why ARCC's NII experienced a fairly consistent, steady growth during 2018 as the Federal ("Fed") Funds Rate and U.S. LIBOR gradually increased. This was one of the main reasons why I originally initiated, and subsequently increased, my position in ARCC during certain periods of market volatility during the latter half of 2018. Simply put, I knew "ahead of time" per se that ARCC's NII would continue to increase as 2018 progressed. However, as noted above, LIBOR has gradually decreased during 2019. As such, these types of loans have recently experienced a net decrease in stated rates when compared to late 2018. I believe this rate of decline will be modest under a "worst-case" scenario. Readers should understand this will likely have a minor negative net impact to NII. Again, the severity of such a decrease will vary from BDC to BDC which I continually track/project.

Once again using Table 3 as a reference, ARCC declared a dividend of $0.40 per share for the fourth quarter of 2019. This was unchanged when compared to the prior quarter. In addition, ARCC declared a special periodic dividend of $0.02 per share for the fourth quarter of 2019 which also was unchanged when compared to the prior quarter (special periodic dividends totaling $0.08 per share spread evenly throughout the four quarters of 2019). This gets back to the notion ARCC continues to have amble cumulative UTI to distribute net investment company taxable income ("ICTI") to shareholders.

ARCC's stock price traded at $18.74 per share on 12/6/2019. When calculated, this was a TTM dividend yield (including special periodic dividends when applicable) of 8.96%, an annual forward yield to ARCC's stock price as of 12/6/2019 of 8.54%, and an annual forward yield to the company's NAV as of 9/30/2019 of 9.27%. When comparing each yield percentage to ARCC's BDC peers within this analysis, the company's TTM yield based on its stock price as of 12/6/2019 and annual forward yield based on its stock price as of 12/6/2019 was near average while its annual forward yield to the company's NAV as of 9/30/2019 was slightly above average. This third percentage is not alarming when it comes to ARCC's dividend sustainability due to the company's prior accretive acquisitions, attractive borrowing costs, recent notable improvement of NII, and periodic generation of net realized/capital gains.

Various Comparisons Between ARCC and the Company's 14 BDC Peers:

A large number of readers have continued to request that I provide yield percentages, dividend per share rates, and other metrics for the BDC stocks I currently cover in ranking order. As such, using Table 3 and Table 4 above as a reference, the following metrics are provided for ARCC and the fourteen BDC peers within this analysis:

TTM Yields as of 12/7/2018 and 12/6/2019, Respectively (Including Annual Dividend Change; Based on Lowest to Highest Percentage as of 12/6/2018) (Good General Indicator of "Back-Testing" Dividend Sustainability; Exceptions Apply):

1) OCSI: 7.12%; 7.43% (Stable Quarterly Dividend)

2) MAIN: 7.58%; 6.79% (5% Monthly Dividend Increase; 2 Special Periodic Dividends Totaling $0.49 Per Share)

3) GBDC: 7.60%; 7.79% (3% Quarterly Dividend Increase; 1 Special Periodic Dividend Totaling $0.13 Per Share)

4) SLRC: 7.81%; 7.98% (Stable Quarterly Dividend)

5) OCSL: 8.13%; 7.22% (Stable Quarterly Dividend)

6) TSLX: 8.90%; 8.33% (Stable Quarterly Dividend; 4 Special Periodic Dividends Totaling $0.25 Per Share)

7) NEWT: 9.00%; 9.21% (42% Quarterly Dividend Net Increase)

8) PFLT: 9.02%; 9.13% (Stable Monthly Dividend)

9) GAIN: 9.28%; 7.01% (Stable Monthly Dividend; 3 Special Periodic Dividends Totaling $0.21 Per Share)

10) ARCC: 9.29%; 8.96% (3% Quarterly Dividend Increase; 4 Special Periodic Dividends Totaling $0.08 Per Share)

11) TCPC: 10.11%; 9.94% (Stable Quarterly Dividend)

12) PSEC: 10.79%; 11.04% (Stable Monthly Dividend)

13) AINV: 11.96%; 10.51% (Stable Quarterly Dividend)

14) MCC: 13.86%; 2.22% (100% Quarterly Dividend Decrease)

15) FSK: 14.05%; 12.06% (Stable Quarterly Dividend)

When comparing each company's TTM dividend yields, a general conclusion that can be drawn is that the lower a company's percentage was as of 12/7/2018, the lower the probability of a dividend decrease (or the higher the probability of a stable/increasing dividend) during the calendar first fourth quarter of 2019 (and vice versa). Again, there are some exceptions to this general "trend" at periodic intervals (for instance companies who experience a "spike" in non-accruals) but I believe one can see some patterns arise when analyzing this specific metric.

For instance, since OCSI, MAIN, GBDC, SLRC, OCSL, TSLX, NEWT, PFLT, GAIN, and ARCC (ranks 1-10 in respective order) had a relatively low (below 10.00%) TTM dividend yield as of 12/7/2018, I do not believe it was a surprise each company either had a stable or increasing dividend per share rate during the calendar first fourth quarter of 2019 (in MAIN's, GBDC's, TSLX's, GAIN's, and ARCC's case also declaring special periodic dividends). As one moves down this list, it's also not surprising MCC (rank 14) had a material (at or greater than 10%) decrease to the company's dividend per share rate during this timeframe. MCC also continued to have the largest percentage of investments on non-accrual status as of 6/30/2019 (results have not been provided for the calendar third quarter of 2019 yet). This was a negative trend that factored into this company's recent notable dividend reduction. In fact, MCC did not pay a dividend for the calendar second, third, or fourth quarters of 2019, mainly due to another quarter of likely generating a net investment loss/negative net ICTI (results have not been provided for the calendar third quarter of 2019 yet).

Annual Forward Yield Based on Stock Price as of 12/6/2019 (Based on Lowest to Highest Percentage) (Another Good General Indicator of Near-Term Dividend Sustainability; Exceptions Apply):

1) MCC: 0.00%*

2) GAIN: 5.57%

3) MAIN: 5.87%

4) TSLX: 7.18%

5) OCSL: 7.22%

6) GBDC: 7.24%

7) OCSI: 7.43%

8) SLRC: 7.98%

9) ARCC: 8.54%

10) PFLT: 9.13%

11) TCPC: 9.94%

12) AINV: 10.51%**

13) PSEC: 11.04%

14) FSK: 12.06%

14) NEWT: 12.06%***

* = A notable portion of MCC's dividend was classified as a "return of capital" ("ROC") distribution for tax-tear 2018. Simply put, MCC distributed annual dividends in excess of the company's annual net ICTI. This is the main reason for the ($0.05) per share decrease in dividend distributions for the calendar first quarter of 2019 and no dividend for the calendar second, third, and fourth quarters of 2019.

** = Over the past several years, a notable portion of AINV's dividend has been classified as a ROC distribution. Simply put, AINV has distributed annual dividends in excess of the company's annual net ICTI. However, each year has had a growing percentage of distributions out of TI (versus a ROC distribution). For 2019, I am projecting AINV will have 100% of the company's dividend distributions classified as "ordinary income" ("OI"); 100% out of TI which would be a positive catalyst/trend.

*** = In regards to NEWT's high forward yield and low weighted average yield on debt investments percentage, it should be noted a sizable percentage of the company's net ICTI (a more technical term for TI) comes from capital gains associated with the sale of its small business administration ("SBA") Section 7a government-guaranteed loans (in the future a likely increasing proportion within SBA 504 loans and its recently created joint venture with TCPC). Premiums associated with the Section 7a loans have ranged between 9%-13% over the past 5+ years. Simply put, these premiums have remained fairly consistent, even during times when other pockets of debt/credit markets have experienced heightened volatility when it comes to pricing/yields. In addition, NEWT continually recognizes recurring dividend income from some of the company's control investments. As such, NEWT's low weighted average annualized yield on debt investments is a bit deceiving when it comes to dividend sustainability/yields. In a nutshell, NEWT has a more unique business model when compared to the fourteen BDC peers within this analysis. In addition, NEWT's quarterly dividend per share rate is "seasonal." Simply put, lower dividend per share rates are typically declared during the first and second quarters of any given calendar year while higher dividend per share rates are typically declared during the third and fourth quarters.

Annual Forward Yield Based on NAV as of 9/30/2019 (Based on Lowest to Highest Percentage) (A Very Good General Indicator of Near-Term Dividend Sustainability; Exceptions Apply):

1) MCC: 0.00%*

2) OCSL: 5.76%

3) OCSI 6.42%

4) GAIN: 6.59%

5) SLRC: 7.49%

6) GBDC: 7.88%

7) PSEC: 8.12%

8) PFLT: 8.79%

9) ARCC: 9.27%

10) TSLX: 9.33%

11) AINV: 9.63%

12) FSK: 9.67%

13) MAIN: 10.41%

14) TCPC 10.60%

15) NEWT 18.43% (different business model; see "***" note above)

Regarding this specific metric, I would point out this type of comparative analysis a couple years ago correctly identified PSEC with heightened risk of a near-term dividend reduction. It was determined PSEC had the second highest annual forward yield of 10.60% based on each company's NAV as of 6/30/2017. It also identified, at the time, several other BDC peers during each respective time period. Simply put, I believe this specific metric has proven to be highly useful.

Weighted Average Annualized Yield on Debt Investments as of 9/30/2019 (Based on Highest to Lowest Percentage) (Another Very Good General Indicator of Near-Term Dividend Sustainability; However Also Generally Heightens Risk for Investment Depreciation):

1) GAIN****: 15.00% (2.1% Net Increase When Compared to 9/30/2018)

2) PSEC: 12.70% (0.8% Net Decrease When Compared to 9/30/2018)

3) SLRC: 10.72% (0.48% Net Decrease When Compared to 9/30/2018)

4) TSLX: 10.70% (0.4% Net Decrease When Compared to 9/30/2018)

5) TCPC: 10.60% (1.1% Net Decrease When Compared to 9/30/2018)

6) MAIN: 10.31% (0.29% Net Decrease When Compared to 9/30/2018)

7) FSK: 10.10% (1.0% Net Decrease When Compared to 9/30/2018)

8) ARCC: 9.80% (0.5% Net Decrease When Compared to 9/30/2018)

9) MCC: 9.50%***** (0.4% Net Decrease When Compared to 9/30/2018)

10) AINV: 9.40% (1.3% Net Decrease When Compared to 9/30/2018)

11) OCSL: 8.90% (0.5% Net Increase When Compared to 9/30/2018)

12) PFLT: 8.70% (0.1% Net Decrease When Compared to 9/30/2018)

13) GBDC: 8.40% (0.4% Net Decrease When Compared to 9/30/2018)

14) NEWT: 7.84%*** (0.09% Net Decrease When Compared to 9/30/2018)

15) OCSI: 7.40% (0.3% Net Decrease When Compared to 9/30/2018)

**** = As alluded to earlier, GAIN's percentage as of 9/30/2019 is a bit of a misnomer as the vast majority of this recent increase was directly due to success fee income being accrued during the quarter from a recent exit of a portfolio investment, Alloy Die Casting. Simply put, this particular income is sporadic in nature (not consistent) and is tied to exits of certain portfolio companies. Excluding this particular income, GAIN's percentage would have been in the high 12% range.

***** = MCC metrics as of 9/30/2019 were not available at the time this article was written. As such, all 9/30/2019 metrics were "carried over" from 6/30/2019 for comparative purposes.

Cumulative UTI Outstanding Shares of Common Stock Ratio as of 9/30/2019 (Based on Highest to Lowest Ratio) (Great Indicator of Dividend Sustainability and Potential for Future Special Periodic Dividends) (With the exception of ARCC, All Ratios Solely for The REIT Forum Subscribers):

3) ARCC: 0.98 (0.92 as of 9/30/2018)

Conclusions Drawn (Part 2):

This article has compared ARCC and 14 BDC peers with regard to recent dividend per share rates, yield percentages, and several other highly unique dividend sustainability metrics. This article also discussed ARCC's near-term dividend sustainability. Using Table 3 above as a reference, the following were the recent dividend per share rates and yield percentages for ARCC:

ARCC: dividend of $0.40 per share and special periodic dividend of $0.02 per share for the calendar fourth quarter of 2019; 8.96% TTM dividend yield (when including special periodic dividends); 8.54% annual forward yield to the company's stock price as of 12/6/2019; and 9.27% annual forward yield to the company's NAV as of 9/30/2019.

Since ARCC had a similar TTM weighted average annualized yield decrease on the company's debt investments when compared to the sector peers within this analysis (a neutral factor/trend), a very attractive cumulative UTI balance (a very positive catalyst/trend), a slightly below-average interest rate on all debt outstanding (a positive catalyst/trend), and an above-average percentage of floating interest rate debt investments (generally a positive catalyst/trend when LIBOR rises; becomes a negative factor/trend when LIBOR decreases), I believe the company should have an annual forward yield to its NAV near-slightly above the average of the fifteen BDC peers within this analysis. From analyzing these metrics, I believe ARCC remains appropriately valued.

When combining this data with various other analytical metrics not discussed within this specific article (some factors were covered in PART 1), as outlined in my dividend sustainability analysis in July, I believe the likelihood of ARCC having a stable-slightly increasing quarterly dividend through the end of 2020 remains very high (90% probability).

When combining the analysis above with various other analytical metrics not discussed within this specific article (some factors were covered in PART 1), the following probabilities regarding the fourteen BDC peer's near-term dividend sustainability is provided:

TSLX: Very high (90%) probability of a stable-slightly increasing "base" dividend and minor-modest special periodic dividend for the calendar first quarter of 2020

GAIN: Very high (90%) probability of a stable-slightly increasing monthly dividend for January-March 2020 and a $0.03-$0.15 special periodic dividend range for the calendar first quarter of 2020 (also possibility of another deemed distribution during 2020)^

GAIN's dividend sustainability was discussed, earlier this year, in the following article:

Gladstone Investment's Updated Dividend Sustainability Analysis (Impacts From Very Large Deemed Distribution)

MAIN: Very high (90%) probability of a stable-slightly increasing monthly dividend for March 2020-May 2020 and a slightly decreased special periodic dividend for the first half of 2020 when compared to the second half of 2019^^

MAIN's dividend sustainability was recently discussed in the following article:

Main Street Capital's Dividend Sustainability Through June 2020 (Includes Special Periodic Dividend Projection)

NEWT: Very high (90%) probability of a modestly-notably decreasing dividend for the calendar first quarter of 2020 when compared to the fourth quarter of 2019 (typically trend regarding this company). However, annual 2020 dividend per share rate should be a minor increase when compared to 2019.

AINV, FSK, GBDC, OCSI, OCSL, SLRC, and TCPC: High (80%) probability of a stable-slightly increasing dividend for the calendar first quarter of 2020

PFLT: High (80%) probability of a stable-slightly increasing dividend for January-March 2020^

PSEC: Relatively High (70%) probability of a stable dividend for the months of February-April 2020^^^

MCC: High (80%) probability of no dividend for the calendar first quarter of 2020 if the potential acquisition of this BDC and MDLY by Sierra Income Corp. (pending ticker SRA) is further delayed/does not occur

^ = Monthly dividends have currently been declared through December 2019 (per GAAP)

^^ = Monthly dividends have currently been declared through February 2020 (per GAAP)

^^^ = Monthly dividends have currently been declared through January 2020 (per GAAP)

Looking back to prior dividend projections, I correctly projected MCC's cumulative UTI balance would decrease to $0 during the calendar second half of 2018 and would remain at $0 during 2019. This analysis also correctly identified a high probability of a special periodic dividend for ARCC, GAIN, MAIN, and TSLX during 2019 (and in GAIN's case an increased special periodic dividend).

My Buy, Sell, or Hold Recommendation:

From the analysis provided above, including additional factors not discussed within this article, I currently rate ARCC as a sell when the company's stock price is trading at or greater than a 16% premium to the mean of my ARCC projected NAV as of 12/31/2019 range ($17.25 per share), a hold when trading at greater than a 6% but less than a 16% premium to the mean of my ARCC projected NAV as of 12/31/2019 range, and a buy when trading at or less than a 6% premium to the mean of my ARCC projected NAV as of 12/31/2019 range. These ranges are unchanged when compared to my last ARCC article (approximately 1 week ago).

Therefore, I currently rate ARCC as a HOLD (however, fairly close to my BUY range). As such, I currently believe ARCC is appropriately valued from a stock price perspective (however, fairly close to being undervalued). My current price target for ARCC is approximately $20.00 per share. This is currently the price where my recommendation would change to a sell. This is unchanged when compared to my last ARCC article. The current price where my recommendation would change to a BUY is approximately $18.30 per share. This also is unchanged when compared to my last ARCC article.

As of 12/6/2019, I currently have a buy recommendation on the following BDC stock analyzed above (based on the premium (discount) to my projected NAV as of 12/31/2019; considers full list of positive/negative factors/trends):1) SLRC

As of 12/6/2019, I currently have a hold recommendation on the following BDC stocks analyzed above (in no particular order): 1) AINV; 2) OCSL; 3) FSK; 4) PSEC; 5) GBDC; 6) TCPC; 7) TSLX; 8) OCSI; 9) NEWT; and 10) PFLT

As of 12/6/2019, I currently have a sell recommendation on the following BDC stocks analyzed above (in no particular order): 1) GAIN; and 2) MAIN (strictly based on valuation)

While I do find GAIN and MAIN somewhat attractive and attractive, respectively, from an operations/portfolio perspective, I also believe, when compared to some of the other BDC peers, these stocks are currently slightly-modestly overvalued. For more "passive"/long-term investors, this simply means if I held a position in GAIN or MAIN (which I currently do not), I would not add to my position at current levels.

Each investor's buy, sell, or hold decision is based on one's risk tolerance, time horizon, and dividend income goals. My personal recommendation will not fit each reader's current investing strategy. The factual information provided within this article is intended to help assist readers when it comes to investing strategies/decisions.

Recent/Current BDC Sector Stock Disclosures:

On 10/12/2018, I initiated a position in ARCC at a weighted average purchase price of $16.40 per share. On 12/10/2018, 12/18/2018, and 12/21/2018, I increased my position in ARCC at a weighted average purchase price of $16.195, $15.305, and $14.924 per share, respectively. When combined, my ARCC position has a weighted average purchase price of $15.293 per share. This weighted average per share price excludes all dividends received/reinvested. Each ARCC trade was disclosed to readers in real-time (that day) via the StockTalks feature of Seeking Alpha.

On 9/6/2017, I re-entered a position in PSEC at a weighted average purchase price of $6.765 per share. On 10/16/2017 and 11/6/2017, I increased my position in PSEC at a weighted average purchase price of $6.285 and $5.66 per share, respectively. When combined, my PSEC position has a weighted average purchase price of $6.077 per share. This weighted average per share price excludes all dividends received/reinvested. Each PSEC trade was disclosed to readers in real-time (that day) via the StockTalks feature of Seeking Alpha.

On 6/5/2018, I initiated a position in TSLX at a weighted average purchase price of $18.502 per share. On 6/14/2018, I increased my position in TSLX at a weighted average purchase price of $17.855 per share. My second purchase was approximately double the monetary amount of my initial purchase. When combined, my TSLX position had a weighted average purchase price of $18.071 per share. This weighted average per share price excluded all dividends received/reinvested. On 11/12/2019, I sold my entire TSLX position at a weighted average sales price of $21.875 per share. This calculates to a weighted average realized gain and total return of 21.1% and 35.7%, respectively. I held this position for approximately 17 months. Each TSLX trade was disclosed to readers in real-time (that day) via the StockTalks feature of Seeking Alpha.

On 10/12/2018, I initiated a position in SLRC at a weighted average purchase price of $20.655 per share. On 12/18/2018, I increased my position in SLRC at a weighted average purchase price of $19.66 per share, respectively. When combined, my SLRC position has a weighted average purchase price of $19.909 per share. This weighted average per share price excludes all dividends received/reinvested. Each SLRC trade was disclosed to readers in real-time (that day) via the StockTalks feature of Seeking Alpha.

On 3/13/2019, I initiated a position in GAIN at a weighted average purchase price of $11.625 per share. On 6/6/2019, I increased my position in GAIN at a weighted average purchase price of $11.085 per share. When combined, my GAIN position had a weighted average purchase price of $11.257 per share. This weighted average per share price excluded all dividends received/reinvested. On 11/11/2019, I sold my entire GAIN position at a weighted average sales price of $13.78 per share. This calculates to a weighted average realized gain and total return of 22.4% and 28.3%, respectively. I held this position for approximately 7 months. Each GAIN trade was disclosed to readers in real-time (that day) via the StockTalks feature of Seeking Alpha.

On 10/2/2019, I re-entered a position in NEWT at a weighted average purchase price of $21.635 per share. On 10/7/2019, I increased my position in NEWT at a weighted average purchase price of $20.95 per share. When combined, my NEWT position has a weighted average purchase price of $21.121 per share. This weighted average per share price excludes all dividends received/reinvested. Each NEWT trade was disclosed to readers in real-time (that day) via the StockTalks feature of Seeking Alpha.

Final Note: All trades/investments I have performed over the past several years have been disclosed to readers in real-time (that day at the latest) via the StockTalks feature of Seeking Alpha (which cannot be changed/altered). Through this resource, readers can look up all my prior disclosures (buys/sells) regarding all companies I cover here at Seeking Alpha (see my profile page for a list of all stocks covered). Through StockTalks disclosures, at the end of November 2019 I had an unrealized/realized gain "success rate" of 96.6% and a total return (includes dividends received) success rate of 97.9% out of 47 total past and present positions (updated monthly, multiple purchases/sales in one stock count as one overall position until fully closed out). I have yet to realize a "total loss" in any of my past positions. Both percentages experienced a minor increase in October and November due to the continued reversal of the previous sell-off within the mortgage real estate investment trust (mREIT) sector, mainly due to a partial easing of fears of narrowing net spreads and higher prepayments. I encourage other Seeking Alpha contributors to provide real-time buy and sell updates for their readers which would ultimately lead to greater transparency/credibility.

Disclosure: I am/we are long ARCC, GAINM, NEWT, PSEC, SLRC. 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.