Entering text into the input field will update the search result below

Earn 9% Yield With Blue-Chip BDC Ares Capital, Outperformance Set To Continue

Mar. 05, 2020 8:35 AM ETAres Capital (ARCC)ACAS, MAIN164 Comments


  • ARCC has out-performed for 15 years.
  • With solid earnings and dividend coverage, ARCC is still attractively priced.
  • With a yield of 8.9%, ARCC is trading close to 10% below fair value.
  • Looking for a portfolio of ideas like this one? Members of High Dividend Opportunities get exclusive access to our model portfolio. Get started today »

Co-produced with PendragonY

History of ARCC

Ares Capital Corp. (NASDAQ:ARCC) is a business development company that began trading publicly in 2004. Since that time it has generated very attractive annual returns for shareholders of an average of 13% (with dividends reinvested) over a 15-year period. While many companies, particularly BDCs, eliminated their dividend payments during the last recession, ARCC had only a small cut of just under 7 cents a quarter while it continued to pay $0.3447 a share each quarter. In 2019, it increased the dividend in two one-penny steps to the current $0.40 a share per quarter. Also in 2019, ARCC paid a special dividend of 2 cents a share each quarter. One item of note is that ARCC issues a 1099-DIV tax form and not a K-1.

The chart below shows the dividend history of ARCC since 2008, including multiple special dividend payments (not just in 2019).


net asset value ("NAV") or book value per share (as YCharts calls it) also is a very important metric for a BDC. That's the amount of money that's invested. If NAV is declining, income often follows. If income drops too much, dividends most likely will have to be reduced. ARCC generally has had increasing NAV since its IPO.

NAV is useful in determining the safety of the dividend because long-term declines in NAV tend to precede a fall in NII, or net investment income, which is what generates the cash to pay the dividend.

For a BDC, NAV per share is the metric to use. Total NAV can hide the fact that dividend coverage has been reduced by a big acquisition when share sales are used to help fund it. That in part happened to ARCC in 2016 when it acquired American Capital (

High Dividend Opportunities, #1 On Seeking Alpha

HDO is the largest and most exciting community of income investors and retirees with over +4000 members. We are looking for more members to join our lively group and get 20% off their first year! Our Immediate Income Methodgenerates strong returns, regardless of market volatility, making retirement investing less stressful, simple and straightforward.

Invest with the Best! Join us to get instant-access to our model portfolio targeting 9-10% yield, our preferred stock and Bond portfolio, and income tracking tools. Don't miss out on the Power of DividendsStart your free two-week trial today!

This article was written by

Rida Morwa profile picture

Rida Morwa is a former investment and commercial Banker, with over 35 years of experience. He has been advising individual and institutional clients on high-yield investment strategies since 1991.

Rida Morwa leads the investing group High Dividend Opportunities where he teams up with some of Seeking Alpha's top income investing analysts. The service focuses on sustainable income through a variety of high yield investments with a targeted safe +9% yield. Features include: model portfolio with buy/sell alerts, preferred and baby bond portfolios for more conservative investors, vibrant and active chat with access to the service’s leaders, dividend and portfolio trackers, and regular market updates. The service philosophy focuses on community, education, and the belief that nobody should invest alone. Lean More.

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.

Recommended For You

Comments (164)

SeattliteTrader profile picture
I originally posted this list of $ARCC closing prices for perspective during the great meltdown of December '18. Now seems like an appropriate time to revisit. Note the closing price of $3.40 on 3/6/2009. Keep that in mind as shares continue to make new multi-year lows.

10/08/2004 - $15.30
02/16/2007 - $20.13
03/06/2009 - $3.40
04/29/2011 - $17.71
09/30/2011 - $13.77
03/08/2013 - $18.33
02/19/2016 - $12.75
02/24/2017 - $17.79
03/21/2018 - $15.27
11/09/2018 - $17.58
12/21/2018 - $14.84
I think the midday downdraft is due to Blackstone (and presumably Ares) urging their borrowers to draw down their max lines of capital from their senior lenders immediately.
DeeringBanjo profile picture
It looks to me like many of my positions that held up well (or even increased) in the first two weeks are now falling-- margin calls now forcing selling of quality issues? It's almost to the point of muni tax-free yields being too low to justify not swapping to 10%+ solid companies like ARCC, EPD, and even TOOprA
PendragonY profile picture
Yes, margin calls are likely driving a bunch of stocks down that have held up well before. With prices up today that pressure might lessen.
CHEN KUN profile picture
FED cut to 0, is it still good to BDCs
PendragonY profile picture
That will improve their costs so, yes. It will reduce the rates they charge, but it has a lesser impact on longer-term rates than on shorter rates, and those were down already.
Rida: How about this one - ARCC? Do you still hold by this? Mr. Market obviously does not share your rosy assessment, although you are frequently contrarian. I have been massively burned (on paper) by my investments in mReits, BDCs an Reit preferreds. Any guidance for your readers? (If only for your paying readers, let me know so I can finally subscribe).
PendragonY profile picture
Rida and I both still own it. And since pretty much of everything is down, the price change just makes this a better buy. No part of our investment thesis required to share price to go up in the short term.
jculley profile picture
Looks like things are getting very interesting in the BDC space. Does ARCC hit 10 before MAIN hits 25? This market is selling everything indiscriminately!
PendragonY profile picture
Yes, pretty much everything is selling off at this point. Prudence is probably best. I am waiting to buy in the BDC space and mostly working preferred shares right now.
Getting closer to my 15 dollar target, an intraday low of 14.50 would be a steal.
PendragonY profile picture

In normal times I'd say that wasn't the best strategy. But with everything selling off, waiting to get a price that would have been seen as unrealistically low is actually now a good one.
The guessing game.....where will this bottom out?
I have MAIN, GAIN ,ARCC and NEWT in my portfolio. Like all 4.
PendragonY profile picture
I have 3 of those and like them too.
Can't thank this group enough for their comments! I learn just as much from the comments as I do with the articles. bless all of You!
sts66 profile picture
CEFs have to pay taxes on NII they don't pay out and carry over to the next year - how much did that cost ARCC with the $408M carryover? Management letting that 76 cents/shr turn into 95 cents/shr sounds like they're worried about covering the div - I can't think of any good reason to let it increase that much YoY.
PendragonY profile picture
ARCC isn't a CEF, it is a BDC, a different beast all together. And yes, it did have to pay a 4% excise tax on some of the funds it didn't distribute.

Well, they paid out that 8 cents special dividend last year to try and reduce it. Management is very conservative about making sure the dividend is covered, and I like that. That is why they haven't increased the dividend yet, they have a bunch of cash they need to deploy, so they don't yet know how much NII they will generate, so they are waiting till they have better visibility. Given the current situation that seems to have been a good call.
orangejay profile picture
use to be ALD not to happy about that.
ALD was rescued by ARCC. ARCC was a separate DBC. The Allied Capital Corp preferred issue still trades as AFC. AFC traded below $5 during the GFC before ARCC bought out ALD and put their backing behind the AFC. I bought AFC when the ARCC announced the rescue.
ijeff profile picture
3rd dumbest move I've made over the past few years was selling ARCC for a small profit. Yes, there is a #2 and #1 but its too painful to talk about!
PendragonY profile picture

But you can fix it by buying the shares again now (and when no one is looking say that was your plan all along!).
ijeff, I bought a small amount of ARCC last Friday (2-28-20) @ $17.00 and i think it will get back to that price or even lower. Watch it closely and take advantage of this pullback!
DeeringBanjo profile picture
interestingly bought this Friday a.m. before seeing this post. One of two BDC in the portfolio and have been dripping only for years. Today's yield/price was just too tempting for the remainder of that account's dry powder.
PendragonY profile picture
I agree with you the price on ARCC is getting very tempting. I can't believe that prices are so low right now.
@Rida, unrelated to this, what are your thoughts on VET. I know you were long. Stock has fallen so much that div was extremely high and then as many expected, div cut now. Another 10% drop even though should have been largely priced in. Of course announced on a bad trading day. Are you still holding? Did you reduce or are you / would you add more?
PendragonY profile picture
I think the price of oil will likely recover by the summer. And with that recovery, VET's revenue and cash generation will recover as well. That will allow them to restore the dividend in the not too distant future. Depending on how much the price drops, that could turn into a very lucrative opportunity.
Thanks for the reply, I bought before Rida so am down more. I really should be out but like you guys expected the oil price to continue to increase as it was, until the current situation hit.
BlueInsight profile picture
Well said!
Cuip99 profile picture
ARES sounds nice but I have elected to remain with MAIN. MAIN produces a lessor dividend but it is a top notch company with a monthly dividend.
PendragonY profile picture
Thanks for reading and commenting.

I will not argue that MAIN isn't a good company and investment, but instead will ask you why not own both? I do, and am quite happy with them both.
DeeringBanjo profile picture
Agreed. In olden days, having 25 buys for 25 companies was expensive. Now making your own mutual fund in a no-commission brokerage account is, while maybe not easier, at least cheaper.
Great, Thanks. How ARCC is compared to OXSQ, which pays much larger distributions, but decreased it in past?
PendragonY profile picture
We don't like the performance of OXSQ at all. They hold assets that aren't all that good in a BDC structure. If you like CLO assets, OXLC is a better vehicle for owning them (and has the same manager as OXSQ).
Thanks. long both.
Patient Tech Investor profile picture

I didn’t notice any LIBOR rate floor mentioned nor floors on the variable rates. A does have floors on each of these where needed.

Matt GV profile picture
ARCC had a drawdown (total return) of 76% in the last recession. It provides capital to the segment of the market likely to be hardest hit in the next one. I'm not buying.
PendragonY profile picture
The drawdown was temptory and it had only a small dividend cut that was still restored. The next recession is likely to have even less of an impact. And it is still a ways off. The current price is a good value and the dividend is attractive.
peacefulwalk profile picture
Yes, MAIN fared much better in the last recession with a loss of only 25% compared to 55% for the S and P.
PendragonY profile picture
MAIN didn't become a public company till late 2007, so it missed a lot of the last recession.
Do you have any thoughts on APAM?
Long MAIN and ARCC, but investors should be concerned. With interest rates at extraordinary lows, lots of big money is searching for yield - and big money is flowing into the BDC and mezzanine financing areas. With more money chasing a limited number of good deals - there may be increased risk across this whole area. Be cautious and watch your investments.
PendragonY profile picture
Both MAIN and ARCC were doing fine when interest rates were this low recently.
BlueInsight profile picture
Thank you.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

About ARCC

SymbolLast Price% Chg
Market Cap
Yield (TTM)
Rev Growth (YoY)
Short Interest
Prev. Close
Compare to Peers

More on ARCC

Related Stocks

SymbolLast Price% Chg
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.