Recently, Zacks.com users have been paying close attention to Ares Capital (ARCC). This makes it worthwhile to examine what the stock has in store.
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Since BDCs carry in general above-average risks, it makes sense to prioritize defensive and prudently structured picks. Yet, if the price is right, higher risk BDCs could also become enticing investments. In this article, I discuss two tactical or higher risk BDCs - one of which is a buy, and the other one, in my view, should be avoided.
ARCC's attractive dividend yield of 8.25% is impressive. Is the stock worth betting on to earn this dividend yield?
Enbridge benefits from toll road-like cash flows, long-term contracts, steady distributable cash flow growth, and a reliable dividend, supported by a BBB+ credit rating. Ares Capital leverages its scale and industry expertise, generating strong returns through a well-diversified portfolio of senior loans and benefiting from rising M&A activity. Both companies maintain strong balance sheets with investment-grade credit ratings and conservative payout ratios, providing high-quality resilient cash flow in a volatile market.
TipRanks' analyst ranking service highlights three dividend-paying stocks, including McDonald's and Ares Capital.
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Ares Capital achieved its highest portfolio value in Q4'24, driven by strong net investment income and robust demand for new net originations. Despite a slight increase in the non-accrual percentage, Ares Capital maintained excellent balance sheet quality and delivered a well-supported dividend with a 1.15X coverage ratio. The BDC trades at a price-to-NAV ratio of 1.18X, making shares slightly overvalued, in my opinion.
Recently, Zacks.com users have been paying close attention to Ares Capital (ARCC). This makes it worthwhile to examine what the stock has in store.
Ares Capital consistently outperforms its dividend payouts, maintaining a stable $0.48 per quarter despite lower leverage and fluctuating Fed rates. Management remains cautious about increasing leverage and dividends, focusing on maintaining strong earnings and downside protection amid potential possible recession risks. The company reviewed $650 billion in opportunities, committing $5 billion, showcasing its competitive edge in various market segments.
Ares Capital's strong portfolio performance and consistent dividend coverage, despite a rise in the non-accrual ratio, affirm its bullish investment case. The BDC's originations surged 3% in Q4, driven by robust demand for capital, with a notable shift towards higher-quality First Lien Senior Secured Loans. Despite higher operating expenses and non-accruals, ARCC's net investment income and core EPS comfortably covered its dividend, maintaining an 87% payout ratio.