It’s been more than two years since we reviewed Ares Capital (Nasdaq: ARCC).
At the time, the stock received an “A” rating for dividend safety, as net investment income was climbing and the payout ratio was sufficiently low.
Now, in 2026, let’s see whether Ares still garners an “A” rating.
Ares Capital provides loans to private companies. It has a portfolio worth $29.3 billion across 619 borrowers. Software and services make up the largest percentage of the portfolio at 22%.
Examples of investments in Ares’ portfolio include…
- Four first-lien senior secured loans at 8.48% totaling $12.4 million and due in 2028 to MRI Software, a 55-year-old real estate software company based in Cleveland, Ohio
- A $4.8 million first-lien senior secured loan at 8.64% due in 2028 to Steward Partners Global Advisory, a wealth management firm with offices around the country
- Four first-lien senior secured loans totaling $77.4 million at rates ranging from 5.75% to 8.41% due in 2032 to Spruce Bidco II, a medical device provider based in Deerfield, Illinois, that specializes in kidney disease.
Last year, net investment income (NII) came in at $1.415 billion. That was a hair below 2024’s figure of $1.436 billion.
Unfortunately for Ares, any decline in NII or cash flow leads to a downgrade in the Safety Net rating.
We never want to see cash flow going in the wrong direction. It can be an early warning sign that the dividend could eventually be in jeopardy, even if the company can afford it at the time.
The good news is that in 2025, dividends paid were $1.264 billion, or 89% of NII, so Ares could still afford the dividend despite the small decline in NII.
This year, NII is forecast to rise to $1.479 billion, with dividends paid also forecast to increase to $1.337 billion for a 90% payout ratio.
The company has a good track record when it comes to paying its dividend.
The last time it cut the payout to shareholders was in the throes of the global financial crisis. Since the reduction was 17 years ago, it will not affect the dividend safety rating. The statute of limitations on dividend cuts is 10 years.
Ares has paid a $0.48 per share quarterly dividend since December 2022. At the current stock price, that equals a yield of 9.6%.
The only blemish for Ares is the slightly lower NII in 2025. It was barely lower, but that still dings the safety rating.
If the company is able to grow NII this year as expected, it should cancel out last year’s miss, so the stock could get an upgrade early next year.
Though it is lower than the last time we looked at it because of the negative growth in 2025, Ares’ dividend safety rating is still strong.
There is a low risk of a dividend cut.
Dividend Safety Rating: B
Next week, I’ll be looking at a stock from the healthcare sector. Which healthcare stock’s dividend safety should I analyze? Let me know in the comments below.
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