Where Will Ares Capital Be in 3 Years?

Core Viewpoint - Ares Capital is positioned to continue delivering value to shareholders over the next three years, supported by its strong portfolio and investment strategy [1]. Group 1: Portfolio Growth and Diversification - Ares Capital currently has $28.7 billion invested across 587 portfolio companies, with 61% in first lien senior secured loans, an increase from $21.3 billion across 458 companies in late 2022 [3]. - The company invests across 35 industries, surpassing the average of 27 industries for its peers, and has a lower concentration risk with its largest holding at 1.5% of the portfolio compared to 4.8% for the average BDC [4]. - In Q3, Ares made $3.9 billion in investment commitments across 35 new and 45 existing companies, funded by recycling $2.6 billion from exited investments and raising $1 billion in additional debt [5]. Group 2: Market Opportunities - The middle-market segment, which Ares Capital serves, represents a $3 trillion opportunity for providing loans, as these companies are often underserved by traditional banks [7]. - Additionally, as companies remain private longer, there is a $2.4 trillion opportunity for Ares to provide capital to larger companies with over $1 billion in annual revenue [8]. - Ares has shifted focus towards larger companies, with the average portfolio company now generating $177 million in EBITDA, up from $48 million a decade ago [9]. Group 3: Dividend Sustainability - Ares Capital has maintained a stable quarterly dividend of $0.48 per share since late 2022, with a payout ratio below its GAAP net income per share of $0.57 in Q3 [10]. - The company carries forward $1.26 per share of excess taxable income, providing a cushion to maintain its dividend level even if earnings decline [11]. - Continued investments are expected to boost future earnings, and while lower interest rates may pose challenges, the company is positioned to maintain or grow its dividend [12]. Group 4: Future Outlook - Ares Capital is expected to continue expanding and diversifying its portfolio, particularly by investing in larger companies, which positions it well for stable or growing dividends in the future [14].