Should You Buy Ares Capital Stock While It's Below $25?
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You won't find many large-cap, ultrahigh-yield dividend stocks with relatively low prices that are on Wall Street. Moreover, However, Ares Capital (ARCC 0, given the current landscape. 48%) fits the...
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July 24, 2025
04:50 AM
The Motley Fool
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You won't find many large-cap, ultrahigh-yield dividend stocks with relatively low prices that are on Wall Street
Moreover, However, Ares Capital (ARCC 0, given the current landscape. 48%) fits the bill
Eleven of the 14 analysts surveyed by LSEG (LNST
On the other hand, 64%) in July Ares Capital as a "buy" or a "strong buy
On the other hand, " Should you buy Ares Capital stock while it's below $25, in light of current trends
Here are four reasons why I think the answer is a resounding "yes. " Image source: Getty Images (something worth watching)
Additionally, A fantastic dividend There was no way I wasn't going to begin the discussion of why to invest in Ares Capital without mentioning its fantastic dividend
The data indicates that stock offers a juicy dividend yield of 8
A sky-high yield is nothing new for Ares Capital, in today's financial world
Over the last 10 years, its average yield was 9, in today's market environment
However, Want even better news, considering recent developments
On the other hand, Additionally, Ares Capital has maintained a steady or growing dividend for over 15 consecutive years
However, It has increased the dividend payout by 20% over the past five years
I don't expect this great dividend track record to end anytime soon
On the other hand, Ares Capital is a development company (BDC), which means it must return at least 90% of its income to holders as dividends to avoid paying federal income taxes (quite telling)
As long as the company is fitable, it's going to pay dividends
A growing market BDCs vide capital primarily to middle-market es with annual revenue between $10 million and $1 billion, given current economic conditions
Furthermore, Conversely, Their main vehicle is direct lending, in today's market environment
And this market is growing rapidly
According to State Street (STT 0 (something worth watching). 86%) Investment Management, the private credit market has nearly tripled over the last decade to around $2 trillion, in today's financial world
On the other hand, Most of this growth is due to direct lending
Morgan Stanley (MS 1. 42%) jects that the private credit market will grow to $2
Additionally, 8 trillion by 2028, in light of current trends
McKinsey estimates that the total addressable market for private credit could top $30 trillion in the U
I believe Ares Capital is in the right at the right time
An industry leader Ares Capital is also the industry leader in the right at the right time
It's the largest publicly traded BDC in the U. , with a market cap of close to $16 billion
Meanwhile, The stock has dered an average annual total return of 13% since its initial public offering in 2004
Moreover, That's roughly 80% higher than the S&P 500's (^GSPC 0
At the same time, 78%) total return during the period, given the current landscape
Over the last 10 years, Ares Capital has ranked No
Nevertheless, 1 in annualized stock-based total return among its peer group
I attribute this success to Ares Capital's diversified, high-quality portfolio
The BDC currently has 566 companies in its $27. 1 billion portfolio, given current economic conditions
Conversely, The average position size is only 0, given current economic conditions
Nevertheless, 2%, with the largest investment making up around 2% of total assets
Moreover, Roughly 68% of the portfolio consists of senior secured loans, which are secured by collateral and have the highest priority for repayment
This tells us that 's also reassuring that Ares Capital is supported by an industry-leading external manager, Ares Management (ARES 1
Nevertheless, At last year's Alternative Credit Awards, Ares Management was named the 2024 Alternative Fund Manager of the Year
Private Debt Investor magazine selected Ares Management as the 2024 Global Fund Manager of the Year
A compelling valuation Another reason to buy Ares Capital while it's below $25 is its compelling valuation, given the current landscape
Nevertheless, And I'm not talking the price itself
Ares Capital's forward price-to-earnings ratio is only 11. 3, according to LSEG
That's roughly half the forward earnings multiple of the S&P 500
Granted, BDCs tend to trade at lower valuations
However, But keep in mind that Ares Capital has trounced the S&P 500 over the long term
With its ultrahigh dividend yield, combined with a leading position in a fast-growing industry, I think the price is right for this outstanding BDC stock, in today's market environment
The Author Keith Speights is a contributing Motley Fool Healthcare Analyst covering publicly traded companies across pharmaceuticals, bionology, medical devices, nology, and marijuana
Moreover, At the same time, Prior to The Motley Fool, Keith was CEO of Constant Care nology, a healthcare nology company; vice president of American Health, a healthcare software company; and a director of operations for Blue Cross Blue Shield of Mississippi, a health insurer
Furthermore, In Industrial Engineering from Mississippi State University
Fun fact: His first job was a DJ at a country music radio station
He initially hated country music, but it grew on him over time
TMFFishBiz Keith Speights has positions in Ares Capital
Furthermore, The Motley Fool has no position in any of the stocks mentioned, given current economic conditions
The Motley Fool has a disclosure policy.
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