I've bought several stocks in the first few weeks of 2026. One purchase for which I hold an especially strong conviction is Ares Capital (ARCC +1.99%).
This leading business development company (BDC) has been in my portfolio for a while. Why did I just load up even more on this stock? Two reasons stand out.
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A high yet sustainable yield
You probably noticed that the headline of this article mentioned a 9.2% dividend yield. I'd be lying if I didn't acknowledge that this ultra-high yield was a key factor in my decision to buy more Ares Capital shares.
However, it's even more important to me that Ares Capital's dividend is both high and sustainable. The company has either maintained or grown its dividend for 65 consecutive quarters (over 16 consecutive years).
Ares Capital continues to generate core earnings that exceed its dividend payout, a streak the BDC has maintained for 20 consecutive quarters. It also has enough taxable income spillover to support more than two quarters of dividends at current levels, which provides a nice cushion if earnings temporarily dip.
I don't rely on Ares Capital's dividends for income, by the way. They do, though, significantly boost the stock's total return. In fact, Ares Capital has delivered cumulative returns that are 40% higher than those of the S&P 500 (^GSPC +0.62%) and three times higher than those of the S&P BDC Index since its initial public offering in 2004.
NASDAQ: ARCC
Key Data Points
Solid long-term prospects
The second key reason why I recently added to my position in Ares Capital is that I believe the company has solid long-term prospects. Middle-market businesses are increasingly turning to direct lending because it allows them to quickly and reliably close financing transactions.
Ares Capital estimates its total addressable market at $5.4 trillion. Around $3 trillion of this total is the traditional middle market – companies with annual revenue between $100 million and $1 billion. There's also an additional $2.4 trillion opportunity serving companies with more than $1 billion in annual revenue.
While I don't have any illusions that Ares Capital will capture a huge chunk of its total addressable market, the company doesn't need to do so to deliver solid growth. I view Ares Capital's industry relationships, access to capital, and underwriting expertise as significant competitive advantages.
Unsurprisingly, Ares Capital has generated higher returns with lower volatility than its peers over the last three years, five years, and since its IPO. Those are qualities I like to see in any stock I buy.
