ARCC - Ares Capital Q4: Downgrade To Hold But Still A Good BDC For Consistency And Stability

2024-02-14 07:04:00 ET

Summary

• Ares Capital is a conservative BDC that offers consistency and stability for investors looking for income.
• ARCC recently posted better-than-expected earnings, with net investment income and core EPS growing impressively.
• The company's dividend remains safe for the long-term. They also have a strong balance sheet with manageable debt maturing this year. Furthermore, they impressively grew their NAV quarter-over-quarter.
• Due to the BDC being less defensively positioned and fiscally conservative in comparison to peers, their price return has lagged.
• Although they only trade at a P/NAV ratio of 1.03x, I downgraded the stock to a hold due to an expected faster decline in share price when interest rates are cut sometime this year.

Introduction

I consider myself a conservative person by nature, so, therefore, I like to hold conservative companies in my portfolio. One that comes to mind is Ares Capital ( ARCC ), one of the more conservative BDCs in the sector. Many investors prefer peers like Capital Southwest ( CSWC ) or Main Street Capital ( MAIN ) over ARCC, but it remains one of my favorites and a core holding. In this article, I discuss why Ares Capital, despite being more fiscally conservative, is the perfect company to hold for consistent income & stability. I also discuss what led me to downgrade the stock from a buy to a current hold since my last article.

Previous Thesis

As a reminder to readers, I usually cover stocks that I own, or would own here on Seeking Alpha. And if the company is one I hold, I usually write a follow-up article soon after quarterly earnings....

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