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Ares Capital: A High Yield Blue-Chip BDC For Uncertain Times

Dec. 04, 2021 12:22 AM ETAres Capital (ARCC)48 Comments


  • ARCC recently hiked its dividend.
  • ARCC has outperformed the market through cycles.
  • ARCC is one of the safest BDCs you can buy today and offers a 8%+ yield.
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Ares Capital Corp (NASDAQ:ARCC) is a blue-chip BDC that enjoys the dual safety net that comes from being backed by a large global asset manager Ares Management (ARES) as well as an investment grade balance sheet.

The company enjoys 3

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This article was written by

Samuel Smith profile picture

Samuel Smith is Vice President of Leonberg Capital, he has a diverse background that includes being lead analyst at several highly regarded dividend stock research firms. He is a Professional Engineer and Project Management Professional and holds a B.S. in Civil Engineering & Mathematics from the United States Military Academy at West Point and has a Masters in Engineering.

Samuel leads the investing group High Yield Investor investing group. Samuel teams up with Jussi Askola and Paul R. Drake where they focus on finding the right balance between safety, growth, yield, and value. High Yield Investor offers real-money core, retirement, and international portfolios. The services also features regular trade alert, educational content, and an active chat room of like minded investors. Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ARCC either through stock ownership, options, or other derivatives. 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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Comments (48)

Any thoughts on FSK since the merger.? Thanks
I continue to hold a very large position in ARCC. It is by far my largest single holding. I am and will continue to do so. I sleep very well at night! Good investing to all!
lilsdad profile picture
I have an overweight position in MAIN, and have no ARCC. I'm thinking of cutting down on my MAIN and putting this in ARCC. Is this a good idea to do now, or should I wait for a better ARCC price?
Samuel Smith profile picture
@lilsdad Relative to MAIN, ARCC is quite attractively priced.

I'm in the same position, but I'm keeping MAIN and adding a position in ARCC.
If most of the BDC's role involves business lending and ARCC is not excessively leveraged, I don't understand how the returns can consistently be so good as to cover the 8% dividend. Are equity interests the company holds what ends up being so profitable?
Samuel Smith profile picture
@ph48 ARCC invests in riskier loans (in the high single digits) and then applies leverage on them to further enhance returns on equity. Its superior underwriting practices enable it to generate a very low rate of non-accruals, so its returns on equity are in the double digits.
@Samuel Smith Thank you.
I am curious why you are neutral on ARCC given all the positives you itemize. Are you waiting for the price to drop?
Samuel Smith profile picture
@AlphaApril1 note that we are long the stock at High Yield Investor. I am neutral because I do not see it as particularly undervalued at the moment.
Samuel Smith,
Is investing in ARES dead money as compared to ARCC? Do you have a view on ARES as a long term investment as compared to APO? Thanks
Samuel Smith profile picture
@kalu0003 I do not have an opinion of ARES at this point as I have not researched it deeply.
Sam, I have a smallish position, after having been put to at $21. From what I have garnered from you and other writers/commenters is that ARCC is arguably the best BDC. Realize apparently excellent management, but I do question the extremely low institutional ownership. My guess; companies like NLY have soured many on these high yielding "instruments" Explains appreciated.
Samuel Smith profile picture
@Turkey Trot are you asking why there is low institutional ownership?
Samuel Smith profile picture
@Turkey Trot I really don't know. I haven't studied institutional ownership patterns.
Steven Miller profile picture
Hey Samuel, thanks for reminding me of this one.

I'm curious about the reason for your neutral rating.
Samuel Smith profile picture
@Steven Miller I don't find the valuation particularly compelling, but not outrageous either. Just about right.
Steven Miller profile picture
@Samuel Smith
I wondered if that was the reason. Are you still using DCF valuations these days?
Samuel Smith profile picture
@Steven Miller Yes, though I also use several others. It depends on the specific security.
Can anyone tell me if the dividends are taxed in a Canadian TFSA account? Dividends from regular US companies have 15 % of the dividend withheld, is it the same for BDCs? Thanks in advance.
Samuel Smith profile picture
@Django11 Can't help you with that one. Hopefully someone else can.
@Django11 They are not in a RRIF (TD account), but likely are in a TFSA.
thebellsareringing profile picture
Very long ARCC for a few years. All good, no bad.
thank you Sam @Samuel Smith
much agreement on this pick! I respect SA author RidaMorwa at 'High dividend opportunities' and he has been positive on ARCC since 2020. Always reaffirming to see agreement of SA authors! best of fortune to all.
Excellent summary and Long ARCC. Thank you Sam.
Samuel Smith profile picture
@JoeMonte Thank you and you are welcome!
Income4ever aka Cyclenut profile picture
Good commentary
Very long MAIN my only BDC holding presently..
Looking to grab ARCC -$19.50
May be waiting a while but I'm patient
@Income4ever aka Cyclenut Be patient. It will get there. Patience is a virtue
@Income4ever aka Cyclenut It got to 19.50 this morning. I initiated a position, will wait for it to drop more to add more.
What a good and concise article that “makes the case” for an investment in ARCC. Fortunately for me I chose to buy it a few years ago. I’m long MAIN, TSLX, CSWC, and ARCC as BDCs in the Income Section of my portfolio. I’m now going to follow your articles…Merci Beaucoup Samuel.
Samuel Smith profile picture
@alan dagian thanks so much for the kind feedback and honored to have you as a new reader!
Duras profile picture
Another excellent article and very timely. Thank you.
Samuel Smith profile picture
@Duras thank you and you are welcome!
rickevantodd profile picture
Solid article. Very long ARCC.
ljleejohns profile picture
ARCC's dividend has not been cut since Covid hit but even has gone up a cent. Its share price is back over $20. All in all, ARCC is the best of both worlds: income and a bit of growth - which is why I have been holding it for many years and consider it to be my most robust, dependable and gratifying stock.
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