Is Ares Capital Stock a Buy, Sell, or Hold Below Its Net Asset Value?
Key Points
Ares Capital, the largest publicly traded business development company (BDC), currently trades at around a 4.3% discount to book value.
It also sports a forward dividend yield exceeding 10%.
While both factors point to Ares Capital being a great opportunity for dividend investors, waiting until the Oct. 27 earnings release to check two key metrics may be your best move.
- 10 stocks we like better than Ares Capital ›
Ares Capital (NASDAQ: ARCC) typically trades at a premium to its book value. However, the largest publicly traded business development company (BDC) currently trades at around $18.50 per share, while its book value as of June 30, 2026, stands at $19.35 per share, implying a 4.3% discount to net asset value (NAV).
Next week, this BDC reports earnings. I would wait for that report, but if two key metrics prove satisfactory, consider it a strong opportunity for income-focused investors, particularly those on the hunt for high-yield dividend stocks, given its 10.4% forward dividend yield.
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Ares Capital and its valuation discount
At the end of 2025, Ares Capital had a net asset value of nearly $20 per share. Based on the net asset value reported as of June 30, this BDC lost approximately 3.25% of its underlying value over six months.
In short, investors may be pricing Ares at a discount ahead of further anticipated NAV declines. Still, the reason for these declines is a greater cause for concern than the declines themselves.
Keep an eye on these two metrics
BDC stocks must distribute at least 90% of their taxable earnings, but Ares' payouts have exceeded its earnings year to date. During both the first and second quarters of 2026, the BDC reported core earnings of $0.47 per share, but dividends totaled $0.48 per share. For 2026, analysts expect Ares Capital's payout ratio to stay around 100%.
However, based on Q2 results, there is arguably little cause for concern. Unrealized losses and tightening credit spreads have weighed most heavily on earnings lately. Ares' nonaccrual rate increased from 2% on June 30, 2025, to 2.4% on June 30, 2026, but according to Fitch Ratings, this rate remains within manageable levels.
Still, wait for Q3 results, set for release on Tuesday, Oct. 27. If realized losses make up the majority of NAV losses or the nonaccrual rate rises significantly above 2.4%, reconsider the risks. If realized NAV losses remain minimal and the nonaccrual rate holds steady, consider it time to buy.
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Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ares Capital. The Motley Fool has a disclosure policy.
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