Ares Capital (ARCC) stock has risen ~11.7% over the past six months. The company saw a strong performance in 4Q16 on higher deployment, stable yields, and expense management. The company paid a dividend of $0.38 per share in 4Q16, in line with the dividend it paid the year before.

Ares Capital Valuations at a Premium on Relative Outperformance

With a dividend yield of 8.6%, completion of its acquisition of American Capital, and stable yields, the company may provide better returns to its shareholders in 2017. Here’s how some of its peers compare in terms of dividends:

  • Blackstone Group (BX): 7.1%
  • Prospect Capital (PSEC): 10.6%
  • BlackRock Capital Investment (BKCC): 10.7%

Together, these companies form 6.3% of the PowerShares Global Listed Private Equity ETF (PSP). During 4Q16, Ares Capital’s net investment income fell to $138 million on a year-over-year basis due to its higher exits over the past year. The company saw higher net realized gains of $32 million and a GAAP (generally accepted accounting principles) net income of $75 million. Ares Capital’s takeover of American Capital will result in diversification toward retail loans.

High valuations

Currently, Ares Capital is trading at 11.1x on a one-year forward earnings basis. Its peers are trading at 9.4x. The premium has widened in recent quarters on relative outperformance. The company’s yields have fallen marginally in recent quarters due to shifting toward the Senior Direct Loan Program. However, it’s consolidating through inorganic expansion, new programs, and the raising of its credit limits for future expansion.

Middle market lenders could see revivals in their yields, as the Federal Reserve is likely gearing up for rate hikes in 2017. This could propel yields in the market and could result in lending at relatively high yields.

In the next and final part of this series, we’ll study Ares Capital’s analyst ratings in February 2017.

Latest articles

19 Jul

Afya's IPO Sees Strong Listing Gains

WRITTEN BY Mohit Oberoi, CFA

Afya (AFYA) listed on the Nasdaq Global Select Market on July 19. The company priced its IPO at $19 per share.

19 Jul

What to Watch For in Amazon's Q2 Earnings

WRITTEN BY Sanmit Amin

e-Commerce giant Amazon (AMZN) is scheduled to report its second-quarter earnings results after the closing bell on July 25.

19 Jul

Barrick Gold Reaches Deal to Buy Acacia Mining

WRITTEN BY Anuradha Garg

After a long standoff, Barrick Gold (GOLD) and Acacia Mining (ABGLF) have reached an agreement.

19 Jul

Comcast Shares Pop on Goldman's Optimism

WRITTEN BY Ruchi Gupta

Comcast (CMCSA) shares popped after Goldman Sachs issued a positive note on the company recently. Goldman upgraded its rating for Comcast to "buy" from "hold."

19 Jul

Why Analysts Are Bearish on Netflix Stock

WRITTEN BY Aditya Raghunath

Netflix stock fell over 10.0% on Thursday and is down 0.5% today as well.

On Thursday, pet retailer Chewy (CHWY) reported its first-quarter results after the market closed. The company reported its earnings for the first time.