Ares Capital (NASDAQ: ARCC) currently pays a $0.48-per-share quarterly dividend. At its recent stock price of around $19, the business development company (BDC) yields more than 10%. That’s about 10 times the S&P 500‘s yield, which currently sits around 1%.
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Two reasons timing matters
Ares Capital announced its second-quarter dividend payment at the end of April when it reported its first-quarter financial results. The BDC will pay that dividend on June 30th. However, an investor would need to be a shareholder before the market closes on June 15. An investor who buys after that date wouldn’t receive their first dividend until the third-quarter payment, which Ares has historically paid on the last day of September.
Waiting to buy also risks locking in a lower yield. The REIT’s share price has fallen about 8% this year, pushing its yield to around its highest level in the last five years:
However, the share price has already bounced off its recent bottom, and could continue rallying, which would steadily lower the yield. While shares have fallen over the past year due to concerns about the private credit market and falling interest rates, Ares is in a strong position to navigate both headwinds.
The current dividend rate remains sustainable
Ares Capital has paid a stable-to-growing dividend for 67 consecutive quarters. The BDC expects to continue delivering dividend sustainability going forward.
While its core earnings dipped in the first quarter, falling to $0.47 per share (from $0.50 per share in both the fourth quarter and the first quarter of last year) and below the current dividend rate, its payout remains on a solid footing. Ares Capital also booked $0.15 per share in net realized gains in the first quarter, which, when added to its core earnings, resulted in total earnings well in excess of the dividend. That provides “a strong underlying foundation for current distributions,” stated CEO Kort Schnabel on the first-quarter conference call.
The CEO went on to note that the “foundation is further supported by ample spillover income, modest leverage, a more stable rate environment, and credit performance that aligns with our historical track record.” Ares Capital carried forward $1.38 per share of excess taxable income from last year for distribution in 2026. The company also stress-tested its software-oriented portfolio to assess the AI risk of its portfolio companies, finding that 85% are at low risk. Meanwhile, only 1% of those companies are at high risk, representing about 0.3% of its total portfolio, and 14% are at medium risk, accounting for only 3% of its total loan portfolio. These factors drive the company’s continued belief that the “current dividend approximates the long-run underlying earnings power of our business,” the CEO stated on the call.