$ARCC (+0,36%)

Sometimes the most exciting investment ideas don't come from YouTube videos or analyst reports, but from friends. In this case, it was Tim - he had Ares Capital on his radar and said: "Hey Stefan, take a look at this - pretty high dividend, kind of a financial company, but not a classic REIT." Sounds vague, so I took a closer look.

You can see what came out of it here: an in-depth analysis in the usual SteFinanz style - with everything that goes with it: business model, figures, opportunities, risks, valuation, interest rate environment, taxes, DCF, and of course: what do I do with it?

What is Ares Capital?

Ares Capital Corporation (ticker: ARCC) is not a bank, but also not a fund. It is a so-called Business Development Company (BDC) - in simple terms: a listed SME financier with a high dividend.

The business model: ARCC grants loans to medium-sized US companies, often in niches or growth sectors where traditional banks tend to stay away. The loans are mostly senior collateralized (first lien), often with variable interest rates and currently yield an average of 11-12% interest.

ARCC is managed by the well-known investment company Ares Management a big player in the private credit sector. Advantage: Deal flow, experience, structures. Disadvantage: Management fees.

What makes ARCC special: It is the largest listed BDC in the USA, with a portfolio of over 450 companies, well diversified and has remained robust through various crises. The company currently pays a dividend yield of just under 10 %with a relatively moderate level of debt and a historically low default rate.

Sounds good, doesn't it? But: the valuation is sporty, the interest rate environment is changing and the credit cycle is no walk in the park. Let's take a look inside.

Fundamental key figures (as at July 2025)

Key figureValue

Share price

19.44 € (approx. 22.5 $)

Dividend yield

approx. 9.5-10 % gross

Price-earnings ratio

~9-10

Price-to-book ratio

~1,1

Return on equity

~11-12 %

Debt (D/E)

~1.0x (conservative)

Default rate

~1.0 % (fair value)

NAV per share

~20 $ (~18 €)

The share price is slightly above book value, the dividend is generous but covered by current income. The default rate is extremely low for a loan portfolio of this size. ARCC leverages moderately and works with quality - no wild gambling.

How does ARCC earn its money?

Roughly speaking: ARCC raises capital, lends it on at high interest rates, collects interest, pays taxes (hardly any, because it has a REIT-like structure), pays out a lot - and that's it.

The focus here is on variable-interest loanswhich has been extremely profitable in recent years: interest rates in the USA have risen, as has interest income. At the same time, the risk has increased - the question is: how long can borrowers hold out?

Things are looking good so far. ARCC has managed the portfolio conservatively. Over 80 % of the loans are first lien. The average loan amount is less than 0.5 % of the total portfolio - in other words: broadly diversified, low cluster risks.

Valuation: Is the share too expensive?

In short: Fairly valuedperhaps slightly ambitious.

A conservative DCF model (based on expected dividends, 1 % growth, 10 % discount rate) arrives at a fair value of around fair value of around € 18-19 - exactly what the share currently costs.

Relatively speaking, ARCC is rather expensive in the BDC sector: While other BDCs trade at a discount to book value, ARCC is trading at 1.1x NAV. But: Quality costs.

As long as the dividend is secure and the NAV remains stable, the premium is justifiable. If interest rates fall sharply or defaults rise - then things get tight. But this applies to all BDCs.

Opportunities

• Stable dividend: Constant for years, not even cut in COVID. Almost a high-yield blue chip.
• Variable-interest loans: Continue to benefit from high US interest rates.
• Big name: ARCC is the top dog among BDCs - economies of scale, deal flow, management access.
• Good history: Averaged over 13% total annual return over the last 10 years.
• Low default rate: Portfolio is solid, hardly any major loan defaults to date.
• Insider buying: Management has been buying shares recently - not a bad sign.

Risks

• Interest rate turnaround: If the Fed cuts interest rates in 2026 or earlier, interest income will collapse - earnings will shrink.
• Economy: If the USA slides into recession, default rates will rise. Then the dividend may also have to fall.
• Management fees: ARCC is managed externally - Ares cashes in. Not necessarily bad, but in case of doubt it costs returns.
• Premium valuation: The share is not cheap. If confidence wanes, there is a risk of a return to book value or below.
• US taxes: 15% withholding tax on dividends - creditable, but net remains slightly less.

What do the analysts say?

In a nutshell: Everyone thinks it's okay.

Nobody is shouting "Buy!", but nobody is shouting "Sell!" either. The price targets are 22-23 $, which is pretty much at the current price. The dividend is the main argument for many.

ARCC is a typical "buy-and-hold income stock" - you don't buy it because of the price gains, but because of the dividend. If you know that, it's a good investment.

What do I do now?

I thought about it for a long time. The dividend is great. The history is strong. The valuation is not exaggerated.

But: We are late in the credit cycle. The risks are increasing. And with a 10% dividend, you can't afford to make many mistakes. I would not jump in blindly right awaybut: Put it on the watch list and wait for a setback.

If the share falls below €18 again, you could start buying. If you really want to get in, perhaps in small tranches. Or via a savings plan.

Me personally?

👉 Not yet a buy - but definitely worth watching. If interest rates stay high for longer and defaults remain under control, ARCC is a solid dividend earner.

SteFinanz traffic light on Ares Capital

CategoryValuationComment

Balance sheet quality

🟢 Good

Moderate debt, stable NAV development

Business model

🟢 Robust

Solid, proven BDC model, but dependent on interest rates

Dividend stability

🟢 Up to 🟡

High payout, but dependent on interest rates and the economy

Valuation

🟡 Fair

Slightly expensive vs. peers, but quality costs

Growth potential

🟡 Limited

Price fantasy limited - dividend is main argument

Risk

🟡 Medium

Credit risks, interest rate cycle, economy

Tax expense (DE)

🔵 Neutral

US withholding tax creditable, but slightly less net

Long-term potential

🟢 Stable

Good risk/reward ratio over 5+ years

Conclusion:

Ares Capital is not a high-flyer, but a solid dividend donkey. If you are looking for high current income and can withstand cyclical fluctuations, you can do little wrong here - as long as you don't ignore the risks.

Landed on Tim's radar, remained on my watchlist.

If you liked the analysis - please share it with others who are looking for dividend stocks. And if you have any questions or your own experience with BDCs: write to me!

Disclaimer: Not investment advice. Just sharing my personal opinion.

https://stefinanz.de/2025/07/10/ares-capital-das-dividenden-monster/

Hello everyone!

My parents are in the process of selling my grandparents' house. It will probably fetch around €275,000. My parents will soon both be 60 years old.

They had initially considered buying another property nearby. But they have moved away again. The lack of flexibility and the time and risk involved with tenants put them off.

I also told them more about investing in the stock market. They were very open and interested, even though they said they had an unfounded fear of shares etc.

Now my question to you. What is the best way to invest the money? I think dividends would be very nice as my parents like the passive income like from a property. But it should also be very well diversified across countries and sectors.

I personally have developed 2 solutions. You can give your opinion as to whether you think the solutions are good or, of course, if you have completely different ideas.

1. the ETF solution

15% $XEOD (+0,03%) Call money ETF. Div. 1.9%

15% $TDIV (-1,12%) VanEck Divi Leaders. Div 3.5%

10% $TRET (-0,23%) Global Real Estate. Div. 3.7%

7,5% $VHYL (-0,65%) Allworld High Div Yi. Div 3.1%

7,5% $PEH (-0,42%) FTSE RAFI EM. Div 3.9%

5% $EWG2 (+1,36%) Gold

5% $SEDY (-0,04%) iShares EM Dividend. Div 8.0%

5% $JEGP (-0,34%) JPM Global Equity Inc Div 7.1%

5% $EEI (-0,51%) WisTree Europ Equity Inc Div 6.3%

5% $IHYG (-0,15%) High Yield Bond. Div 6.1%

5% $EXXW (-0,08%) AsiaPac Select Div50 Div 5.5%

15% Rest German Divi Shares approx. div 2.5%

=100% with 3.7% dividend.

275k ×3,7% = 10.175€

With full taxation 27.99% = 7327€

On average per month: 610€ dividend

With 2k tax-free allowance: 657€ dividend per month

I find it very well diversified, you have overnight money, you have the USA and Europe well represented, but also 12.5% emerging markets ETF. In terms of sectors, finance will be at the forefront. Followed by real estate and energy. I think that's fine.

2. the equity solution

I have selected 34 strong dividend stocks. In the list they are roughly divided into GICS sectors.

15% $XEOD (+0,03%) Overnight ETF. Div 1.9%

12% $EQQQ (-0,24%) Nasdaq100 ETF. Div 0.4%

5% $EWG2 (+1,36%) Gold

2% $O (+0,21%) Realty Income 6.0%

2% $VICI (-0,8%) Vici Properties 5.6%

2% $OHI (+3,89%) Omega Healthcare 7.2%

2% $PLD (-0,06%) Prologis 4.1%

2% $ALV (-0,92%) Allianz 4.35%

2% $HNR1 (-0,38%) Hannover Re 3.4%

2% $D05 (+0,8%) DBS Group 5.5%

2% $ARCC (+0,36%) Ares Capital 9.3

2% $6301 (+0,5%) Komatsu. 4,2%

2% $1 (-0,49%) CK Hutchison 4.6%

2% $AENA (+0,19%) AENA. 4,2%

2% $LOG (-0,14%) Logista 7.3%

1,5% $AIR (-0,76%) Airbus 1.8%

1,5% $DHL (-2,19%) DHL Group 4.8%

1,5% $8001 (-0,3%) Itochu 2.8%

2% $RIO (+1,42%) RioTinto plc 6.4%

2% $LIN (-0,05%) Linde 1.3%

2% $ADN (-0,89%) Acadian Timber 6.7%

3,5% $BATS (+0,58%) BAT 7.0%

2% $KO (+0,23%) Coca Cola 2.9

2% $HEN (-1,7%) Henkel 3.0%

2% $KVUE (+2,14%) Kenvue 4.1%

2% $ITX (-1,34%) Inditex 3.6%

2% $MCD (+0,51%) McDonalds 2.6%

2% $690D (+0,18%) Haier Smart Home 5.6

3,5% $IBE (-0,27%) Iberdrola. 4,1%

1,5% $AWK (-0,18%) American Water Works 4.4%

1,5% $SHEL (+0,23%) Shell 4.1%

1,5% $ENB (+0,32%) Enbridge 6.5%

2% $DTE (+0,07%) Deutsche Telekom 2.8%

2% $VZ (-0,85%) Verizon 6.8%

2% $GSK (-2%) GlaxoSmithKline 4.2

2% $AMGN (-1,56%) Amgen 3.5%

2% $JNJ (-0,45%) Johnson&Johnson 3.5%

= 100% with 3.5% dividend

275k ×3,5% = 9625€

With full taxation 27.99% = 6930€

On average per month: 577€ dividend

With 2k tax-free allowance: 624€ dividend per month

I also think this solution is cool because you can select the largest companies or strong dividend payers in the individual sectors or countries yourself. And of course you can also select shares with which you have a connection. However, I have focused on shares from the USA, England and Germany because of the withholding tax. Spain is also well represented because of my parents' ties to this country. It's also cool that the NasdaqETF also includes the Microsoft, Amazon, etc. compounders.

What do you think?

Does anyone also save Ares Capital $ARCC (+0,36%) with Scalable? This is the second month in a row that the savings plan has not been executed.

No information as to why. And the customer service doesn't answer either.

All other savings plans are being executed as usual, but not this one.

Hello everyone,

For some time now I have been wavering a bit about my dividend portfolio, whether I should use the 6 ETF savings plans (always staggered distributions for monthly cash flow) are not too complicated. About me: I'm in my mid-thirties and the aim is to build up more and more net monthly salaries through dividends over time. I enjoy looking at my bar charts in Portfolio Performance over the years and seeing how they get bigger and bigger every year compared to the previous year. For this year, I expect to earn around €3,700 in dividends with my current portfolio.

----- ----- -----

The Morningstar X-Ray already shows a lot of stock overlaps. The aim was always to combine 2 ETFs per interval with 1 each with high distributions + and 1 each with growth and to have good diversification:

January, April, July, October

$ISPA (-0,59%) + $EXX5 (-0,55%)

February, May, August, November

$FGEQ (-0,62%) + $IMEU (-1,09%)

March, June, September, December

$TDIV (-1,12%) + $VHYL (-0,65%)

+ $O (+0,21%) + $MAIN (+1,4%) + $ARCC (+0,36%) + $VICI (-0,8%) + $HTGC (+0,44%) + $BATS (+0,58%)

----- ----- -----

The ETFs have a value of approx. 15,500€ per interval, the REITs + BDCs below together approx. 31,000€. I would also like to invest in savings plans with dividend growth shares, whereby I want to proceed according to certain criteria: https://aktienkoenig.de/starke-dividendenaktien-mit-dem-dividenden-check-finden/#elementor-toc__heading-anchor-3

Would you simplify the dividend ETFs and reduce them from 6 to 3 or replace them if necessary, because that is overdiversified anyway, or should I rather "shut down" some of them and continue to save only 3 of them increased? I am basically undecided at the moment as to whether I should focus on higher dividend payouts or rather higher dividend growth. At the moment, I think it's all mixed up.