Ares Capital‘s (NASDAQ: ARCC) primary draw is its monster dividend yield. At greater than 10%, it is practically 10 instances greater than the S&P 500‘s yield.
The business development company (BDC) has paid a stable-to-growing dividend for 67 consecutive quarters. It has endured its share of robust instances through the years, together with over the previous quarter. This is a glance again at its tough quarter and whether or not the high-yielding dividend inventory remains to be a purchase.
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A tough patch
Ares Capital’s core earnings dipped within the first quarter to $0.47 per share, down from $0.50 per share within the fourth quarter and the primary quarter of final yr. That pushed them down under the BDC’s quarterly dividend stage of $0.48 per share. Regardless of that, Ares introduced its subsequent dividend, payable on the finish of June.
Whereas the corporate confronted some headwinds within the interval, administration did not appear too involved. CEO Kort Schnabel led off the quarterly conference call by stating, “I consider we’re off to a robust begin in 2026 with strong earnings and powerful basic portfolio efficiency. Our core earnings of $0.47 per share symbolize an annualized ROE of 9.6% in what has traditionally been a seasonally sluggish quarter for originations.” He additionally famous that, “heightened capital markets volatility, geopolitical uncertainty, and web outflows from retail merchandise exacerbated an already seasonally sluggish market interval within the first quarter.”
On a extra constructive word, the CEO said that “Our general portfolio high quality stays wholesome with continued low ranges of nonaccruing loans and drawback property.” One issue driving that view is that Ares stress-tested its software-focused portfolio firms to evaluate the dangers of AI-related disruption. It employed a prime consulting agency, which discovered that solely a tiny fraction of its funding portfolio was at medium- to high-risk.
What this implies for the dividend
The CEO additionally mentioned the dividend on the decision. He famous that whereas core earnings fell under the dividend, once you add the $0.15 per share of web realized positive factors it recorded within the interval, earnings had been properly above the payout, “offering a robust underlying basis for present distributions.” Additional, the BDC has been carrying ahead extra taxable earnings. This $1.38 per-share spillover revenue from final yr offers additional help for the dividend. Moreover, Ares Capital has modest leverage and continues to ship credit score efficiency in keeping with its historic monitor document.
