Is Ares Capital a Buy, Sell, or Hold in 2026?

Ares Capital (NASDAQ: ARCC) offers investors a monster dividend yield of 9.6%. The business development company's (BDC) payout is several times higher than the S&P 500's current 1.1% yield.

Here's a look at what investors should do with the high-yielding BDC stock in the coming year.

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What does Ares Capital do?

Ares Capital is a specialty finance company. It focuses on providing direct loans and other investments to private middle-market companies (those with between $10 million and $1 billion in annual revenue). This capital enables these companies to grow their businesses, supporting their ability to make interest and dividend payments on Ares' investments.

The company is part of the Ares Management group. Ares is a global leader in private markets with nearly $600 billion in assets under management (AUM) across credit, real estate, private equity, secondaries, and other businesses. Ares Capital's relationship to its parent provides it with greater access to high-quality investment opportunities compared to other BDCs.

Ares Capital is currently the largest BDC, with $28.7 billion in total investments across 587 portfolio companies as of the end of the third quarter. The bulk of its portfolio (71%) consists of senior secured loans, meaning it has priority over the borrower's assets in the event of bankruptcy. It focuses on lending to companies in less cyclical industries and currently has investments across portfolio companies in 34 different industries. As a result, Ares Capital has a very diverse and high-quality portfolio, which helps lower its risk profile. Since its inception, the company's cumulative net realized loss is less than 0%.

Is the big-time dividend safe?

As a regulated BDC, Ares Capital must distribute 90% of its taxable income to investors via dividends to remain in compliance with IRS regulations. That high payout ratio is a big reason why the company has such a high dividend yield.

However, Ares Capital has done a much better job at paying a sustainable dividend than its peers in the BDC sector. The company has delivered 16 years of paying a stable to increasing quarterly dividend. It has been able to deliver dividend stability and growth by setting the quarterly payment to a sustainable level. It will periodically pay a small supplemental dividend, if needed, to return additional income to shareholders and remain in compliance with IRS regulations.

The company currently pays a quarterly dividend of $0.48 per share, which is below its GAAP net income level ($0.57 per share in the third quarter) and core earnings per share ($0.50 per share). By setting its dividend payment to a sustainable level, Ares Capital has built up a cushion. The company is currently carrying forward about $1.26 per share of taxable income from last year for distribution in 2025. This strategy provides a cushion for the company to continue maintaining its current dividend level should it experience a temporary decline in income in the future. As a result, the dividend is on solid ground these days.

What does the future hold for Ares Capital?

While Ares Capital is already the largest BDC, it has plenty of room to grow. Bank consolidation and failures have caused a steady decline in the number of banks operating in the U.S. over the years (70% reduction over the past four decades). As a result, there's less competition at a time when there's growing demand for credit as companies remain private for longer. Ares estimates that there's a $3 trillion opportunity for providing credit to traditional middle market companies and an additional $2.4 trillion opportunity for companies with over $1 billion in annual revenue.

The company has been capitalizing on the growing opportunity in the private credit market by raising additional capital to expand its portfolio. It benefited from its long-standing relationships with banks and institutional capital providers by raising over $1 billion of new debt capital in the third quarter. That helped further bolster its liquidity, enabling it to capitalize on new investment opportunities. Ares Capital made $3.9 billion of new investment commitments during the third quarter across 35 new and 45 existing portfolio companies. These new investments helped offset the impact of $2.6 billion in exited investments during the quarter, enabling the company to expand its portfolio and support its dividend.

Ares Capital is a buy in 2026

Ares Capital is entering 2026 in great shape. It has a strong portfolio and financial profile, positioning the company to continue paying its high-yielding dividend in the coming year. That makes Ares stock a buy for those seeking a lucrative passive income stream in 2026.

Matt DiLallo has positions in Ares Capital. The Motley Fool has positions in and recommends Ares Capital. The Motley Fool has a disclosure policy.