For the model portfolio at Validea, editor John Reese selects stocks based on the long-term strategi...
Ares Capital: Best-of-Class BDC
03/27/2019 5:00 am EST
We like high-yield stocks in a falling-interest-rate environment. We like our REIT recommendations. We also like Ares Capital Corp. (ARCC), which is a business development company (BDC), asserts growth and income expert Ian Wyatt, editor of High Yield Wealth.
Ares business is akin to banking. Ares is the largest BDC on the market. Its portfolio is composed of loans to and investments in 344 companies. The portfolio is valued at $12.4 billion.
Bigger isn’t always better. In this case, it is. We consider Ares as best-of-class. We have considered Ares best-of-class since we first recommended its shares in February 2011.
Ares is our longest-tenured open recommendation. We launched High Yield Wealth in January 2011. Ares was added to our recommendation list a month later. We continue to recommend its shares to this day.
What’s to dislike from a dividend investor’s perspective? Ares has never decreased its dividend. To the contrary, it has periodically increased its dividend since our initial recommendation. It has also periodically supplemented its quarterly dividend with a special quarterly dividend of $0.05 per share.
Ares has periodically increased its dividend yet again. The quarterly dividend will be $0.40 per share with the next payment, a penny more than the previous quarterly payment (ex-dividend date March 14, payment date March 29). Investors will receive $1.60 in annual per-share dividends going forward.
Investors who bought Ares on our initial 2011 recommendation have been paid $12.30 in dividends per share. Ares shares were changing hands at $17 and change on our initial recommendation. These initial Ares investors will receive the full price of their investment in dividends in roughly three more years.
Ares shares trade around $17 and change today. That’s OK because the investment thesis centers on reliable high-yield income, not share-price appreciation.
Ares has delivered on the thesis. The dividend has never wavered. It has been rock-solid. Better yet, the starting dividend yield today — at 9.2% — is higher than our initial dividend yield eight years ago. Suggested Action: Buy Ares Capital Corp. shares up to $17.75.
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