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Why Ares Capital (ARCC) is a Great Dividend Stock Right Now

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Ares Capital in Focus

Based in New York, Ares Capital (ARCC) is in the Finance sector, and so far this year, shares have seen a price change of 2.61%. The private equity firm is currently shelling out a dividend of $0.39 per share, with a dividend yield of 9.67%. This compares to the Financial - SBIC & Commercial Industry industry's yield of 9.59% and the S&P 500's yield of 1.97%.

Taking a look at the company's dividend growth, its current annualized dividend of $1.56 is up 2.6% from last year. In the past five-year period, Ares Capital has increased its dividend 1 times on a year-over-year basis for an average annual increase of 0.15%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Ares Capital's payout ratio is 100%, which means it paid out 100% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for ARCC for this fiscal year. The Zacks Consensus Estimate for 2018 is $1.58 per share, with earnings expected to increase 13.67% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ARCC presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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