Stock Analysis: Ares Capital

black and silver laptop computer

Photo by Yiorgos Ntrahas on Unsplash

Ares Capital Corp (ARCC) is a United States-based closed-ended specialty finance company. Its investment objective is to generate both current income and capital appreciation through debt and equity investments.

As a business development company, it focuses on investing primarily in U.S. middle-market companies with investment opportunities as well as in larger companies. Its portfolio comprises first lien senior secured loans, second lien senior secured loans, and mezzanine debt (subordinated unsecured loan), which may include equity components that are diversified by industry and sector.

The company may invest in preferred and common equity investments to a lesser proportion. Its revenue mainly consists of interest and dividend income received from investments made.

Ares Capital Corp began paying dividends in December 2004 and is headquartered in Los Angeles CA.

Three key data points gauge Ares Capital Corp or any dividend-paying firm.

The key three are:

(1) Price

(2) Dividends

(3) Returns

Those three basic keys best tell whether any company has made, is making, and will make money.

ARCC Price

Over the past year, Ares’s share price fell about 4.9% from $20.56 to $19.55 as of Monday’s market close.

If ARCC’s stock trades in the range of $17.00 to $24.00 this next year, its recent $19.55 share price might rise to $20.50 by next year. Of course, ARCC’s price could drop about the same $0.95 amount, or more.

My upside estimate of $0.95, however, is slightly under the median of target estimates from 16 analysts who track the stock for brokers.

ARCC Dividend

Ares’s quarterly dividends have been paid since 2004. ARCC’s most recent Q dividend, payable September 29th to shareholders of record September 14th is $0.48.  So, ARCC’s annual dividend payout is projected to be $1.92 annually and yield 9.82% per Monday’s closing price.

ARCC Returns

Adding the $1.92  anticipated annual dividend to Ares Capital Corp’s estimated $0.95 price upside reveals a $2.87 potential gross gain per share for the coming year.

At Monday’s $19.55 closing price, a little under $1000 would buy 51 shares.

A $10 broker fee (if charged), paid half at purchase and half at sale, might cost us about $0.20 per share.

Subtracting that maybe $0.20 brokerage cost from my estimated $2.87 gross gain per share makes a net gain amounting to $2.67 X 51 shares = $136.17 for about a 13.56% net gain.

This may be the time to pounce on Ares Capital Corp shares. But beware, ARCC is a business development company. Furthermore, the estimated $98.20 dividend from $1000 invested comes in at over 5 times greater than the recent single share price. The choice is yours.

Remember the true value of any stock is best determined by your own personal ownership of shares.

More By This Author:

Current Analysis: Banco De Chile (BCH)
Stock Analysis: M.D.C. Holdings
Daily Stock Analysis: The Buckle Inc.

Disclosure: This article was compiled by Rydlun & Co., LLC from data derived from www.ycharts. com;; analyst median target price by YCharts.

Catch ...

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.