Ares Capital Corporation (ARCC): Big Dividend, 3 Big Risks

And while such a discount can be viewed as a risk (i.e. it can be more challenging for a BDC to raise capital when its Price to Book is low), we view it as a positive indication of stock price appreciation potential. For example, part of the reason the price has declined is due to near-term expectations surrounding its upcoming acquisition of American Capital (more on this later).

Ares’ consistent ability to cover its dividend payment is another attractive quality. For example, the orange highlights in this next table shows Ares quarterly Net Investment Income per share generally exceeds its quarterly dividend payment with a fair amount of consistency and low volatility (and the purple highlights are a reminder of Ares’s discount to NAV, which is attractive in our view).

This next table shows Ares’s consistent big-dividend payments, which we consider attractive.

Other fundamentals worth considering are Ares’s growing earnings before interest taxes depreciation and amortization (EBITDA), its reasonable and consistent leverage multiple, and its healthy interest coverage ratio, as shown in the following graph.

Short Interest Considerations

As shown in the following chart, Ares’ short interest spiked earlier this year when it announced its planned acquisition of the second largest BDC by market capitalization, American Capital Ltd. (NASDAQ:ACAS).