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For today, I am going to take a quick look at Ares Capital Corporation (NASDAQ: ARCC), known for their high yield and being one of the good, inexpensive, dividend paying companies that is within the Capital Markets of the Financials Sector.
And ARCC is pretty much what many would call a BDC (Business Development Companies) which earn their income by lending out money to other businesses.
Ares Capital Corporation’s philosophy is “offering our clients diversified investment solutions is made possible by our devoted team of investment and business professionals. Each of Ares’ investment platforms is led by a dedicated group of senior investment professionals. In addition to serving in their primary discipline, some of our professionals participate on the investment committees of and/or have responsibilities with our other investment teams. This practice ensures a consistent approach to asset management while promoting the sharing of ideas, knowledge and networks across all of our investment platforms”.
As of March 31, 2021, Ares Capital Corporation’s portfolio had a fair value of approximately $15.4 billion, and consisted of 350 portfolio companies backed by 176 different private equity sponsors. Ares Capital has a diversified portfolio in terms of issuer concentration, asset class, industry sector and geographic representation.
In terms of Issuer Concentration Composition, 6.9% was concentrated on Senior Direct Lending Programs, 4.2% towards Ivy Hill Asset management, L./P., 2.1% towards Singer Sewing Company, SVP-Singer Holdings, LLC and SVP-Singer Holdings LP.
In terms of Asset Class Composition (top 3), First Lient Senior Secured Loans were 47.1% and Second Lien Senior Secured Loans were 25.4 and Senior Direct Lending Program was set at 6.9%.
For Industry Composition top 3), 15.3% was towards Software & Services, 15.2% for Health Care Services, 8.6% for Commercial & Professional Services.
And their Geographic Composition (top 3) is 28.2 in the Midwest, 26.5% in the West and 21.5% in the Southeast.
Their Portfolio of Investments are also diversified in various industries which include A.U.L. Corp., Absolute Dental Group LLC and Absolute Dental Equity, LLC., ACAS Equity Holdings Corporation and many more.
So, let’s take a look at their chart from 2005-2021.
Source: Schwab.com
Currently the stock is trading at $19.38 and opened back in 2004 at $15.23.
The company remained consistent at the $18-$20 range for the last 17 years with the exception of the market crash of 2007-2008 and taking several years to recover and finding its stride in 2011. And then taking the downward turn in 2020 due to the Pandemic.
This is no surprise but the fact that they remained quite consistent of hovering in the $16-$18’s is a positive. And after the pandemic, continuing to surge above $19.
In fact, ARCC crossed above the average analyst 12-month target price of $19.28, reaching $19.35 per share.
The company’s market cap is $8.7 billion, enterprise value of 16.4 billion and shares outstanding is currently at 440.9 million. 30% of shares are held by institutions.
And the company posted a revenue of $390 million in the first quarter of 2021.
Ned Davis Research is neutral on ARCC, while CFRA gives it a hold and Reuters Research has it outperforming. Market Edge Second Opinion Weekly has it Neutral from Long.
I didn’t see any insider buying or selling in 2021, but for 2020, there was 159,991 shares bought for a value of $2.2 million and sales of 7,000 shares for $115,780 by its CFO, Penelope F. Roll. Most buys were made by the Director Robert L. Rosen and other executives.
The company has been good paying a dividend of an annual of $1.57-$1.68 for the past eight years. Even during the pandemic, the company managed to continue their dividend without a significant drop from $1.68 annually in 2019 to $1.60 for 2020-2021 with a high annual dividend yield of 8.11%.
For me, I tend to look for high yield, profitable and consistent dividend companies that pay between $1.25-$2.00 but their share price are at $20 or under. And also feel its great for dividend investors, who have a weak dividend month of March, June, September and December.
It’s not a growth stock, as one can see on the chart from 2005 to 2021 but it’s an attractive company primarily for income play. As a passive income, dividend investor, under $20 with a $1.60 annual dividend and an 8.11% yield is a major plus.
If the company’s share price goes over $20, I expect the yield to shrink but buying ARCC at a dip, ARCC is no doubt an attractive stock for its dividend payout. In fact, they are one of the top BDC companies to invest in.
I’m definitely holding!
As always, perform your due diligence and do a lot of research before investing. Talk to a financial advisor and find out if Ares Capital Corporation (NASDAQ: ARCC) would be a perfect investment for you.
