Ares Capital (ARCC 3.27%) recently closed the books on 2025 by reporting its fourth-quarter and full-year financial results. It was a strong year for the business development company (BDC), capped by a record level of new investment commitments. They added new stable sources of income to support its 10%-yielding dividend.
The BDC has now paid a stable or growing dividend for 16 consecutive years. It's in a solid position to continue paying a bankable dividend, making it a compelling income stock to buy.
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A solid year
Ares Capital generated $0.50 per share of core earnings during the fourth quarter, which more than covered its $0.48 per share quarterly dividend. That continued the BDC's trend of delivering core earnings exceeding its dividend payments. For the year, Ares Capital reported $2.01 per share of core earnings, which more than covered the $1.92 per share in dividends it paid.
The specialty finance company also had a strong year in securing new debt investments. Ares Capital made $5.8 billion in new investment commitments in the fourth quarter across 30 new portfolio companies and 84 existing ones, 80% of which were first-lien, senior-secured loans. That more than offset the $4.7 billion of investment commitments it exited during the period. For the year, the BDC made a record $15.8 billion of gross commitments while exiting $12.1 billion of investments.
NASDAQ: ARCC
Key Data Points
Ares Capital ended the year with an industry-leading investment portfolio valued at $29.5 billion across 602 portfolio companies. That's up from $26.7 billion invested across 550 companies at the end of 2024.
Strong momentum to continue growing
The company enhanced its already strong balance sheet last year. It added a record $4.5 billion in new debt commitments, while maintaining ample liquidity to support new investments.
Ares Capital is off to a strong start in securing new investments this year. It made $1.4 billion in new investment commitments through late January, while exiting $709 million in commitments. Meanwhile, the company had another $2.2 billion of potential investments in its backlog near the end of January.
These new investments will help support the company's dividend payment. Ares also estimates that it will carry forward $1.38 per share of excess taxable income from last year for distribution in 2026. It provides some additional cushion for its dividend should core earnings dip below the dividend level.
An enticing income investment
Ares Capital has built a market-leading platform. The company believes its scale and expertise position it well to deliver attractive shareholder returns, including dividends. With its long-term trend of dividend stability and growth expected to continue, it's an appealing option for investors seeking a lucrative passive income stream.
