Ares Capital: High Yield and Long-Term Prospects
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 3d ago
0mins
Source: Fool
- Sustainable High Yield: Ares Capital boasts a 9.2% dividend yield and has maintained or increased its dividend for 65 consecutive quarters, demonstrating strong profitability that supports future dividend payments and enhances investor confidence.
- Strong Profitability: The company has core earnings exceeding its dividend payouts for 20 consecutive quarters, with sufficient taxable income to cover more than two quarters of dividends, providing a cushion against potential earnings fluctuations and ensuring investment stability.
- Broad Market Opportunities: Ares Capital estimates its total addressable market at $5.4 trillion, with $3 trillion in the traditional middle market, indicating significant growth potential in direct lending, as the company does not need to capture a large market share to achieve solid growth.
- Clear Competitive Advantages: With industry relationships, capital access, and underwriting expertise, Ares Capital has generated higher returns with lower volatility than its peers over the last three, five years, and since its IPO, making it a quality stock worth investing in.
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Analyst Views on ARCC
Wall Street analysts forecast ARCC stock price to rise over the next 12 months. According to Wall Street analysts, the average 1-year price target for ARCC is 22.50 USD with a low forecast of 21.00 USD and a high forecast of 24.00 USD. However, analyst price targets are subjective and often lag stock prices, so investors should focus on the objective reasons behind analyst rating changes, which better reflect the company's fundamentals.
7 Analyst Rating
6 Buy
1 Hold
0 Sell
Strong Buy
Current: 20.290
Low
21.00
Averages
22.50
High
24.00
Current: 20.290
Low
21.00
Averages
22.50
High
24.00
About ARCC
Ares Capital Corporation is a specialty finance company focused on providing direct loans and other investments in private middle market companies in the United States. The Company invests primarily in first lien senior secured loans (including unitranche loans, which are loans that combine both senior and subordinated debt, generally in a first lien position), and second lien senior secured loans. In addition to senior secured loans, it also invests in subordinated debt, which in some cases includes an equity component, and preferred equity. It also may invest up to 30% of its portfolio in non-qualifying assets. Its investment activities are focused on industries, such as software and services, health care services, commercial and professional services, financial services, commercial and professional services, insurance services, energy, food and beverage and others. The Company is externally managed by Ares Capital Management LLC (investment adviser).
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
Top High-Yield Stocks: Ares Capital and More
- Ares Capital Stability: Ares Capital currently boasts a 9.5% dividend yield, and as a registered investment company, it must distribute at least 90% of its taxable income, ensuring its stability and attractiveness in middle-market financing.
- Starwood Property Trust Success: Leading with a 10.7% dividend yield, Starwood Property Trust has maintained its dividend without cuts for over a decade, successfully diversifying its portfolio to enhance its competitive edge in the real estate market.
- Western Midstream Partners Growth Potential: With a distribution yield of 9%, Western Midstream Partners has rebounded its payout to pre-pandemic levels after a reset during the pandemic, and it plans to further increase distributions through acquisitions and infrastructure investments.
- Attracting Passive Income Investors: Ares Capital, Starwood Property Trust, and Western Midstream Partners all offer yields up to 10.7%, appealing to investors seeking stable passive income and demonstrating strong future distribution potential.
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Ares Capital's Price Drop Attracts Investor Interest
- Dividend Yield Advantage: Ares Capital's dividend yield exceeds 9%, significantly higher than the S&P 500's 1.2%, making it an attractive option for investors in the current market environment.
- Portfolio Growth: Despite a decline in investment yield from 11.7% to 10.6%, Ares Capital's investment portfolio value has increased from $25.9 billion to $28.7 billion, demonstrating its robust growth capability amid evolving market conditions.
- Capital Raising Ability: The company raised over $1 billion in new debt capital during the third quarter through long-standing relationships with banks and institutional capital providers, enabling $3.9 billion in new investment commitments across 35 new and 45 existing companies, further enhancing its portfolio.
- Market Opportunity: Ares Capital estimates a $3 trillion market opportunity in the traditional middle market, and with the reduction in the number of banks and increasing financing needs, private credit firms like Ares Capital are well-positioned for growth.
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