Ares Capital reported third-quarter core earnings of $0.46 per share, a decline from $0.50 in the year-ago period and below its $0.48 quarterly dividend. The shortfall marks a shift in the company's prior excess dividend coverage.
Ares Capital is not at risk of cutting the payout. CFO Scott Lem disclosed on the third-quarter earnings call that the company identified $1.37 per share in taxable income carry-forwards available for distribution in 2025—more than enough to cover the dividend gap.
CEO Kort Schnabel said on the call: "We continue to believe ARCC's current regular dividend appropriately reflects the underlying earnings power of the business." He attributed the confidence to portfolio strength, favorable market pricing, current interest rates, and the anticipated accretion from the MidCap Financial acquisition.
Ares Capital agreed to acquire MidCap Financial Investment Corporation for $2.6 billion in assumed and direct liabilities. The deal is projected to be modestly accretive to core earnings per share and will expand future dividend capacity.
The acquisition will double Ares Capital's scale. The combined entity will manage a portfolio exceeding $31 billion across more than 800 companies, compared with MidCap Financial's current $2.8 billion portfolio spread across 229 companies.
Schnabel said: "Based on the depth of our due diligence on each investment in the portfolio, the company believes it has an excellent foundation in place to continue its successful acquisition track record."
When the deal closes, Ares Capital will have acquired all three of the largest Business Development Companies that existed at its initial public offering more than two decades ago. The company is now the largest publicly traded BDC.
Ares Capital has maintained a stable or rising dividend for 69 consecutive quarters—over 17 years—a rare track record among income-focused stocks. ARCC trades around $18.75 per share with an annualized dividend of $1.92, yielding 10.2 percent, compared with 1.1 percent for the S&P 500. Net asset value per share stood at $19.31 at the close of Q3.
