9.8% Dividend yield? What makes this BDC capable of such dividends?

Recently discovered a good source of passive income: Ares Capital (ARCC), with a dividend yield of up to 9.8%.

In simple terms, what is it: This is a BDC (Business Development Company) that specializes in directly lending to private enterprises. As part of the larger Ares Management platform, it has an asset management scale of $596B and ranks among the top in the direct lending field.

Why is the dividend so high?

1. The investment portfolio is very stable: $28.7B in assets diversified across 587 companies, with the largest single share only 1.5%. 71% are backed by collateralized loans (the safest type).

2. Strong Risk Control Capability: Since its establishment, the average annualized loss rate of loan investments is 0%. For comparison: ordinary banks 0.6%, other BDCs average 1.1%. This data is quite something.

3. Stable Dividends: Stable or increasing dividends for 16 consecutive years, with a 26% growth over the past decade. In the most recent quarter, core earnings were $0.50 per share, fully covering the dividend of $0.48 per share, with a remaining buffer.

4. Balance Sheet Health: The leverage ratio is only 1.0 times, with a target ceiling of 1.25 times, leaving room for expansion.

Why can it be divided this way? The tax benefits of BDCs - they must distribute 90% of taxable income to shareholders to avoid corporate tax. Therefore, high dividends are not charity, but determined by rules.

In short, this is a dividend machine supported by stable interest income and strong risk control. It is suitable for passive income players who want a stable cash flow.