An In-depth Analysis of ARCC's Dividend History, Yield, Growth, and Sustainability
Ares Capital Corp(ARCC, Financial) recently announced a dividend of $0.48 per share, payable on 2023-09-29, with the ex-dividend date set for 2023-09-14. As investors look forward to this upcoming payment, the spotlight also shines on the company's dividend history, yield, and growth rates. Using the data from GuruFocus, let's deep dive into Ares Capital Corps dividend performance and assess its sustainability.
Understanding Ares Capital Corp's Business Model
Ares Capital Corp 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. The company focuses on investing primarily in U.S. middle-market companies with investment opportunities as well as in larger companies. Its portfolio comprises of 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 the investment made.
A Glimpse at Ares Capital Corp's Dividend History
Ares Capital Corp has maintained a consistent dividend payment record since 2004. Dividends are currently distributed on a quarterly basis. Ares Capital Corp has increased its dividend each year since 2010. The stock is thus listed as a dividend achiever, an honor that is given to companies that have increased their dividend each year for at least the past 13 years.
Below is a chart showing annual Dividends Per Share for tracking historical trends.
Breaking Down Ares Capital Corp's Dividend Yield and Growth
As of today, Ares Capital Corp currently has a 12-month trailing dividend yield of 9.48% and a 12-month forward dividend yield of 9.74%. This suggests an expectation of increase dividend payments over the next 12 months.
Over the past three years, Ares Capital Corp's annual dividend growth rate was 3.00%. Extended to a five-year horizon, this rate decreased to 2.50% per year. And over the past decade, Ares Capital Corp's annual dividends per share growth rate stands at 1.20%.
Based on Ares Capital Corp's dividend yield and five-year growth rate, the 5-year yield on cost of Ares Capital Corp stock as of today is approximately 10.73%.
The Sustainability Question: Payout Ratio and Profitability
To assess the sustainability of the dividend, one needs to evaluate the company's payout ratio. The dividend payout ratio provides insights into the portion of earnings the company distributes as dividends. A lower ratio suggests that the company retains a significant part of its earnings, thereby ensuring the availability of funds for future growth and unexpected downturns. As of 2023-06-30, Ares Capital Corp's dividend payout ratio is 1.14. And this may suggest that the company's dividend may not be sustainable.
Ares Capital Corp's profitability rank, offers an understanding of the company's earnings prowess relative to its peers. GuruFocus ranks Ares Capital Corp's profitability 5 out of 10 as of 2023-06-30, suggesting fair profitability. The company has reported positive net income for each of year over the past decade, further solidifying its high profitability.
Growth Metrics: The Future Outlook
To ensure the sustainability of dividends, a company must have robust growth metrics. Ares Capital Corp's growth rank of 5 out of 10 suggests that the company has a fair growth outlook.
Revenue is the lifeblood of any company, and Ares Capital Corp's revenue per share, combined with the 3-year revenue growth rate, indicates a strong revenue model. Ares Capital Corp's revenue has increased by approximately -7.60% per year on average, a rate that underperforms than approximately 67.37% of global competitors.
The company's 3-year EPS growth rate showcases its capability to grow its earnings, a critical component for sustaining dividends in the long run. During the past three years, Ares Capital Corp's earnings increased by approximately -13.80% per year on average, a rate that underperforms than approximately 70.06% of global competitors.
Lastly, the company's 5-year EBITDA growth rate of -0.60%, which underperforms than approximately 69% of global competitors.
Conclusion
In conclusion, Ares Capital Corp's consistent dividend history, robust yield, and growth rate make it an attractive option for dividend investors. However, its high payout ratio and underperformance in growth metrics compared to global competitors raise questions about the sustainability of its dividend in the long run. Therefore, investors should carefully consider these factors before making an investment decision.
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