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

Ares Capital is a large business development company with a huge 9.9% yield.

The company's net investment income can be a little lumpy, so investors need to take a longer view with the dividend.

Ares Capital (NASDAQ: ARCC) 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 (SNPINDEX: ^GSPC) 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.

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.

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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.

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.