Ares Capital (NASDAQ:ARCC) stock fell over 3.2% in after-hours trade on Thursday after the company upsized its public offering to 10.5 million shares from 9 million. The fear of dilution from the public offering weighed on the shares of this high-yield dividend-paying company.
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Ares Capital is a business development company that offers loans to medium-sized enterprises. ARCC plans to use the net proceeds from the offering to reduce outstanding indebtedness under its credit facilities.
While ARCC stock slipped a little, its high yield appears attractive. Ares Capital stock pays a quarterly dividend of $0.51 a share, reflecting a stellar yield of 9.95%.
Its highly diversified portfolio (spread across 23 industries) and focus on defensive companies operating in less cyclical sectors protect the downside risk and drive its earnings. Thanks to its growing earnings base, Ares Capital has maintained or increased its dividend in the past 13 years. Further, its average annual shareholder return of 12% appears attractive.
Is Ares Capital a Good Stock to Buy?
ARCC’s high dividend yield and solid payout history make it an attractive income stock. Furthermore, Wall Street analysts are bullish about its prospects. Ares Capital stock has received eight Buy and one Hold recommendations for a Strong Buy consensus rating. ARCC’s price target of $21 implies 7.09% upside potential.
Alongside analysts, hedge funds are also optimistic about ARCC. Hedge funds, including Ray Dalio’s Bridgewater Associates, increased their holdings in ARCC by 80.5K shares last quarter. Overall, ARCC carries an Outperform Smart Score of nine.
