Warren Buffett has been selling more stocks than he's bought for 11 straight quarters. That’s a major distinction between the legendary investor and myself. Another, of course, is that his fortune exceeds mine by about $150 billion.
However, Buffett and I do share a trait: we’re both very particular about the stocks we choose to invest in. Like him, I’m not aggressively buying a lot of stocks right now. That said, I recently increased my stake in Ares Capital ( ARCC 1.27%). Here are three reasons I decided to buy more of this dividend stock with a 9.4% yield.
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1. The most obvious reason
I already mentioned the main reason I picked up more shares of Ares Capital: its impressive dividend yield. Investors looking for income will appreciate a 9.4% payout. While I don’t focus exclusively on income, I know that a robust yield can make it much easier for a stock to deliver double-digit total returns.
But is Ares Capital’s dividend sustainable? I believe it is. The company has either maintained or increased its dividend for 64 quarters in a row. That 16-year streak gives me confidence in Ares Capital’s ability to keep rewarding shareholders.
It’s also important to note that Ares Capital is a business development company (BDC). Similar to REITs, BDCs are required to distribute at least 90% of their earnings as dividends to avoid federal income taxes. In its most recent quarter, Ares Capital reported earnings per share of $0.52 and paid out $0.48 per share in dividends.
2. Strong growth outlook
Don’t let Ares Capital’s lackluster stock performance in 2025 mislead you. Thanks to its high dividend, the total return is much better. Over the long haul, the company’s record is even stronger. Since its IPO in 2004, Ares Capital’s total return has outpaced that of the S&P 500. Most importantly, the BDC has promising growth prospects.
Ares Capital’s potential market is estimated at about $5.4 trillion. This market is expanding as borrowing needs rise and more lending shifts from traditional banks to private capital, especially direct lending. As the largest publicly traded BDC, Ares Capital is in a prime position to benefit from this trend.
This isn’t just a long-term possibility. During the company’s Q2 earnings call, CEO Kort Schnabel noted that the number of deals Ares Capital reviewed jumped 20% from Q1 to Q2, with nearly half of Q2’s activity occurring in June alone. He also said, “This momentum gives us visibility into a potentially more active second half of the year.”
3. A compelling risk-reward balance
Every stock comes with some level of risk. Still, I think Ares Capital presents a particularly appealing balance between risk and reward.
Stock valuations are currently at historically high levels, which is a key reason Buffett isn’t buying much. But Ares Capital’s valuation isn’t stretched. Its forward price-to-earnings ratio stands at just 10.7.
The company’s financial position is solid. At the end of Q2, Ares Capital had about $6.5 billion in available liquidity and a net debt-to-equity ratio (after accounting for cash) of 0.98. It also faces no debt maturities for the remainder of 2025.
The BDC’s portfolio is well diversified, spanning 566 companies, with its largest holding making up only about 2%. Ares Capital also prioritizes clients in stable, non-cyclical sectors.
How about the possible effects of President Donald Trump’s tariffs? On the Q2 earnings call, Schnabel said, “I think our portfolio companies feel quite good about being able to pass through pricing.” He also mentioned that only a “low single-digit percentage” of Ares Capital’s portfolio is highly exposed to tariff risks.
So, what do you get when you combine a very high dividend yield, strong growth potential, and a favorable risk-reward profile? You get a stock that you can confidently add to your portfolio.
