Private Credit Keeps Making Headlines. Is Ares Capital's Big Dividend Still Safe?
Written by Reuben Gregg Brewer for The Motley Fool -> Ares Capital is a large business development company that invests in the same types of assets as private credit businesses. Private credit businesses have been limiting customer withdrawals amid growing concerns about their
Ares Capital is a large business development company that invests in the same types of assets as private credit businesses.
Private credit businesses have been limiting customer withdrawals amid growing concerns about their investments.
The main reason most investors own Ares Capital (NASDAQ: ARCC) is its massive 10% dividend yield. For reference, the S&P 500 index (SNPINDEX: ^GSPC) has a yield of just 1.1%. Before you buy this business development company (BDC), however, you need to step back and make sure you understand just how risky the dividend is.
If you are looking for a stock with a stable or even slowly growing dividend, you will be highly disappointed with Ares Capital. The dividend history here is very clear: Ares Capital's dividend rises and falls over time. There is zero reason to expect that to change in the future, with the stock generally following the dividend higher and lower. It all relates back to the company's core business model.
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As a business development company , Ares Capital makes loans to smaller businesses that lack access to cheaper capital. In the first quarter of 2026, the average interest rate on its loans was a massive 10.3%. That's how it supports such a huge dividend, but there are negatives to consider here.
For example, interest rate changes will impact the rates it can charge. In fact, many of its loans carry variable rates, so they will adjust higher and lower fairly quickly. That increases dividend risk in a falling-rate environment. Ares Capital benefits when rates rise, but there's a risk here, too. Smaller companies may have difficulty covering rising interest costs. And if there is a recession , well, financial stress could easily lead to payment troubles among Ares Capital's customers. In fact, the dividend was trimmed during each of the last two economic downturns.
Ares Capital is basically a public business that invests in private credit. It is designed to pass income on to shareholders, so the dividend will likely be sizable all of the time. However, it will be variable, rising and falling along with the business environment. If you need the income from your portfolio to cover living expenses, it probably won't be a good fit. But if you can accept some dividend volatility, it is a well-respected BDC.
