Core Viewpoint - Ares Capital Corporation (ARCC) is highlighted as a strong investment opportunity due to its high dividend yield of 8.7%, significantly exceeding that of the S&P 500 index, and its role in providing loans to mid-sized businesses overlooked by traditional banks [1][2]. Company Overview - Ares Capital operates as a business development corporation (BDC), which is required to distribute at least 90% of its taxable income to shareholders, making it an attractive option for high-yield income investors [3]. - The company specifically targets middle-market companies with EBITDA ranging from $10 million to $250 million, which are often underserved by traditional banks [4]. - Ares Capital has a long history, being the largest BDC in the U.S. with a 20-year lending history and has invested $160 billion since its inception [14]. Market Context - The decline in the number of banks due to consolidation and stricter regulations has led banks to focus on larger businesses, creating a lending opportunity for BDCs like Ares Capital [5]. - Ares Capital utilizes floating-rate loans, which adjust with interest rate changes, potentially increasing income and dividend payments as rates rise [6]. Credit Quality and Risk Management - Ares Capital manages credit quality by investing in first-lien or second-lien senior secured loans, which constitute 64% of its total loans, positioning it favorably during liquidation events [10]. - Currently, non-accrual loans account for just 0.9% of Ares Capital's total investments, showing stability in credit quality [9]. - The company has a diversified portfolio with 566 companies, and its largest single investment represents only 2% of the total portfolio [10]. Performance and Future Outlook - Ares Capital has delivered an annual total return of 12.9% since its founding in 2004, outperforming the S&P 500 index [12]. - The total addressable market for Ares Capital is estimated at $5.4 trillion, indicating significant growth potential as the market shifts towards alternative investments like private capital lending [14].