Ares Capital Earned $0.50 a Share and Is Paying Out $0.48. How Thin Is That Dividend Cushion?

Ares Capital (ARCC +1.99%) is likely to be most attractive to income investors, given its lofty 9.9% dividend yield. To put that into perspective, the yield of the S&P 500 index (^GSPC +0.62%) is a tiny 1%. That said, a yield that high comes with risks that have to be fully understood. Which is why it is important for investors to consider the business development company’s (BDC’s) second-quarter results in a larger context.

How did Ares Capital do in the second quarter?

Ares Capital began its second-quarter earnings update by announcing the third-quarter dividend: $0.48 per share. That’s the same level that has been paid since the fourth quarter of 2022. So it wasn’t a particularly shocking update. But the BDC’s net investment income was $0.50 per share, leaving only a two-cent cushion for the dividend.

Image source: Getty Images.

In the first quarter, the business development company generated $0.55 per share of net investment income. The key takeaway is that this number moves around a little bit, so you need to look at a longer time period before making a call on Ares Capital’s dividend-paying ability.

For example, in 2025, Ares Capital’s net investment income totaled to $2.02 per share while it paid out $1.92 in dividends. During the year, net investment income ranged between $0.58 per share and $0.48 per share on a quarterly basis. Clearly, the board isn’t deciding the dividend based on one quarter’s results. Still, that doesn’t mean that investors shouldn’t be worried.

Looking at the longer-term net investment income trend

That said, looking back to 2023 changes the dynamic a little bit. The company has paid the same $1.92 per share in annual dividends since that year. However, in 2023, the net investment income totaled $2.28 per share. In 2024, the company reported that net investment income dipped slightly to $2.25 per share, which still suggested ample dividend safety. But in 2025, net investment income fell to $2.02 per share. That’s cutting things a lot closer, making the first half of 2026 a bit more troubling. Investors should be paying closer attention.

Today’s Change

(1.99%) $0.39

Current Price

$20.01

Key Data Points

Market Cap

$14BMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.

Day’s Range

$19.56 – $20.03

52wk Range

$17.40 – $22.76

Volume

5.9M

Avg Vol

5M

Gross Margin

78.21%

Dividend Yield

9.60%

Still, through the first half of 2025, the company generated $1.03 per share in net investment income, compared with $1.05 per share in the first half of 2026. From that perspective, the BDC’s results are improving.

The bigger risk is a recession

What is likely to be more important in the near term is the quality of the company’s loan portfolio. The bad news is that non-accrual loans inched up to 2.4% of the portfolio in the second quarter, from 1.8% at the start of the year. The good news is that 2.4% isn’t a terrible number. However, dividend risk appears to be rising here, and a recession, which would likely increase the number of non-accrual loans and reduce net investment income, could easily force the company to consider a dividend cut, given the drop in dividend coverage from 2023.