Blue Owl Capital (OBDC -0.37%) had little choice but to cut its dividend. As management explained, the cut was made to align the dividend "with the portfolio's go-forward earnings power." To be fair, dividend cuts are fairly normal for business development companies (BDCs), so this isn't a sign that Blue Owl Capital is specifically in any trouble.
That fact is a problem for the rest of the BDC sector, which faces the same headwinds as Blue Owl Capital. This is why investors should be watching closely as peers like Main Street Capital (MAIN -0.06%), Ares Capital Corporation (ARCC -0.37%), and FS KKR Capital (FSK +0.10%) report their results. Here's what to watch.
Image source: Getty Images.
Why did Blue Owl Capital cut?
Blue Owl Capital's first-quarter results weren't exactly bad. However, they weren't entirely good, either. The base dividend reduction from $0.37 per quarter to $0.31 essentially reduced the payment to the company's first-quarter adjusted net investment income (NII) per share. Adjusted NII dropped from $0.36 per share in the first quarter of 2025 to $0.31 per share in the first quarter of 2026.
That wasn't driven by bad loans, which is a key factor investors need to consider. The BDC's non-accrual loans as a percent of the total portfolio actually declined to 1% at the end of the first quarter from 1.1% at the end of 2025. That's really not a huge improvement, but it highlights that credit quality isn't the issue.
NYSE: OBDC
Key Data Points
The bigger problem was the changing interest rate environment. The average rate on Blue Owl Capital's loans was 11.1% at the end of 2024. It fell to 10.7% in the first quarter of 2025. And by the first quarter of 2026, it was down to 10%. Basically, the BDC was earnings less income.
On top of that, the portfolio's value has been declining. The company noted that, "Net asset value per share of $14.41, as compared with $14.81 as of December 31, 2025, primarily reflecting the impact of credit spread widening on the portfolio." A year ago, NAV per share was $15.14. That's a problem to watch, too.
Blue Owl Capital isn't alone
Starting with interest rates, Main Street Capital's average rate on private loans in the first quarter was 10.3%, down from 11.4% a year earlier. The BDC's distributable net investment income per share before taxes fell from $1.07 in the first quarter of 2025 to $1.04 in the first quarter of 2026. Its net asset value per share, however, increased from $32.03 to $33.46. Main Street Capital typically gets equity stakes in the companies it loans to, so this improvement isn't surprising. Non-accrual loans fell from 1.7% of the portfolio to 1.2%. With a base dividend of $0.795 per share per quarter, it is unlikely that Blue Owl Capital will need to lower its base dividend.
NYSE: MAIN
Key Data Points
Ares Capital Corporation already reported second-quarter 2026 results. It didn't cut its dividend, but investors should probably keep a close eye on the BDC. The average interest rate on loans fell year over year, going from 10.9% in the second quarter of 2025 to 10.3% this year. Net investment income per share was $0.50 in the second quarter of 2026, up a penny year over year and enough to cover the $0.48 per share dividend. That said, NAV per share fell from $19.90 in 2025 to $19.35. And non-accrual loans moved in the wrong direction, rising from 2% of the portfolio to 2.4%. It would be advisable for dividend investors to continue to closely monitor Ares Capital Corporation.
NASDAQ: ARCC
Key Data Points
In the first quarter of 2025, the average interest rate on FS KKR Capital's portfolio was 11%. In the first quarter of 2026, it had fallen to 9.9%. Adjusted net investment income per share was $0.41, down from $0.65 in the first quarter of 2025. FS KKR Capital paid dividends of $0.48 per share in the first quarter, down from $0.70 in the same quarter of 2025. The base dividend accounted for $0.45 of the first-quarter total in 2026, and it has already been cut again to $0.42, with no variable dividend announced. So the dividend has already been cut here, but that doesn't mean there won't be more downside.
NYSE: FSK
Key Data Points
Notably, the NAV fell to $18.83 per share from $20.89 at the end of 2025. That's a material decline in a very short period of time. A year ago, the NAV was $23.37. Shockingly, non-accrual loans rose to 4.2% of the portfolio from 2.1% in the first quarter of 2025. That's the wrong direction and a massive increase in troubled loans. The second-quarter results should be closely monitored to see if the trends remain negative. Given the dividend cut already announced, it seems likely the quarterly results will be a tough read.
There's information in the yield
If you check online quote services, FS KKR Capital's yield is listed at over 20%. That's a sign that investors are worried about the stock, and there's good reason. Compare that to Main Street's yield of around 6%, and you can see the difference in risk right away. Ares Capital's yield is 10%, while Blue Owl Capital's yield is 13%. As investors know very well, there's an interplay between risk and reward on Wall Street. But if you take on too much risk in the BDC space, your reward could be a dividend cut. Tread carefully and err on the side of caution, even if it means buying the lowest-yielding BDC.
