I am retired and take educated guesses on all things financial.

December 19, 2009

December 19,2009: Ares Capital, 11.8% + Astute Management = A Winning Combination

For investors who are looking for a high dividend with upside potential for superior growth, Ares Capital Corporation (ARCC) may well fulfill that hope.

ARCC is a closed-end, non-diversified finance company called a Business Development Company (or, BDC). Ares Capital went public in 2004 with proceeds of $140m. It now has approximately $30b of committed capital. This company, with offices in Los Angeles, New York, London, Chicago, Atlanta, Paris Stockholm and Frankfurt has the global reach and seasoned managerial expertise to spot under performing assets and acquire them or provide financing and other services when the price is right. ARCC's most recent deal was taking possession of Allied Capital, once a behemoth in real estate areas which had fallen on hard times. The smart money says Ares got a great deal in buying Allied Capital for less than $4.00 per share.

Ares also provides a one-stop solution to meet the distinct and underserved financing needs of private middle market companies across diverse industries. With traditional banks squeezing these type entities, Ares is there to assist deserving companies finance necessary operations. Being a patient, long-term investor with permanent capital, Ares has developed a reputation for flexibility, a willingness to hold large positions, and the ability to offer sponsors and management teams to increase the chances of a mutually successful relationship.

ARCC runs many Limited Liability Corporations under their corporate umbrella. Ivy Hill Middle Market Credit Fund, Ivy Hill Asset Management Company and Ares Capital Management Company are but a few. The asset balance is diverse and not widely susceptible to a sector contagion. The overall quality of assets appear lower investment-grade, as the company has a S&P BBB rating. I have looked at a few of the deals, and they appear to have excellent collateral and other guarantees cooked into them. That said, do not confuse my document skimming with a thorough analysis.

Trading at $11.89 per share, ARCC sports an 11.80% dividend and trades a hefty volume for liquidity. Technical trends for this $1.3b market cap company are strong, overall.

In short, Ares Capital should be on investors' short list of worthwhile inclusions as they look for growth and income clout for their 2010 portfolios.

The author does not hold a position in ARCC at this writing.

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