Ares Capital's 10% Yield May Not Be as Alluring as it Looks
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By Reuben Gregg Brewer – Apr 1, 2026 at 9:15PM ESTKey PointsAres Capital is a business development company with a 10.6% yield.The dividend yield is high, but so is the risk of a dividend cut.The first thing that many dividend investors consider when looking for stocks is dividend yield. That makes logical sense, but it also creates the risk that an attractive yield will blind you to an investment's inherent risk. That's the problem with Ares Capital (ARCC 1.61%) and its ultra-high 10.6% dividend yield. Here's what you need to know before you buy this income stock. Ares Capital is designed to pay dividends Ares Capital is a business development company (BDC). It is a very specific business structure designed to pass income to shareholders in a tax-advantaged manner, much like a real estate investment trust (REIT). What BDCs do is make loans to smaller companies that don't have access to other financing options. BDCs are also supposed to provide guidance to borrowers to help them grow their businesses. Image source: Getty Images. BDCs are very interesting. Because their clients can't easily access capital markets or get bank loans, BDCs can charge extremely high interest rates. Ares Capital's average loan rate in the fourth quarter of 2025 was a lofty 10.3%. That's how it supports its huge dividend yield. And from a big picture perspective, Ares Capital is a large and well-respected BDC. Be careful what you wish for with Ares Capital If you want to buy a business development company, Ares Capital should be on your short list. However, you need to make sure you fully understand the risks you are taking on before you buy any BDC, including Ares Capital. By design, Ares Capital invests in high-risk, capital-constrained businesses. If they could get lower-cost loans or sell stock at attractive prices, they would almost certainly do so. In fact, Ares Capital is always dealing with at least a few clients that are having trouble covering their interest expenses. Roughly 1.8% of its loans were on non-accrual status at the end of 2025. ExpandNASDAQ: ARCCAres CapitalToday's Change(-1.61%) $-0.29Current Price$17.73Key Data PointsMarket Cap$13BDay's Range$17.60 - $18.1452wk Range$17.40 - $23.41Volume8.6MAvg Vol7.6MGross Margin75.68%Dividend Yield10.65% During recessions, however, non-accruals often spike. During the 2007 to 2009 Great Recession, Ares Capital's non-accruals rose from 1.2% to 4.4%. Given the high interest rates on the loans Ares Capital makes, that's not at all surprising and is, in fact, normal in the BDC sector. The negative impact that recessions can have on dividends is also normal, as Ares Capital's dividend has been cut in each of the last two recessions. When too many clients have trouble paying at once, BDCs have little choice but to trim dividends. Even more generally, Ares Capital's dividend has been a bit volatile. Ares Capital offers a high yield, but not a reliable dividend When you step back, Ares Capital will likely continue to offer a large dividend and a high yield. But the dividend won't be reliable. If you need your dividends to pay for living expenses, Ares Capital's lofty yield probably won't be a good fit for your income portfolio.Read NextMar 29, 2026 •By Matt DiLalloIs It Time to Load Up on These 3 Ultra-High-Yielding Dividend Stocks? (1 Yields 11%!)Mar 21, 2026 •By Dave KovaleskiMy Top 3 Dividend Stocks for March 2026Mar 15, 2026 •By Keith Speights3 Magnificent High-Yield Dividend Stocks to Buy and HoldApr 1, 2026 •By Motley Fool StaffMarch 2026 Mailbag: Habits, Hacks & “Boom”Apr 1, 2026 •By Motley Fool StaffThe Reality of Investing in 2026Apr 1, 2026 •By Jeremy BowmanWhy Nike Stock Lost 15% in MarchAbout the AuthorReuben Gregg Brewer is a contributing Motley Fool stock market analyst covering energy, utilities, REITs, and consumer staples. He is the former director of research at Value Line Publishing, where he rose from mutual fund analyst to equity analyst before leading all research operations. Reuben holds a bachelor’s degree in psychology from SUNY Purchase, a master’s in social work from Columbia University, and an MBA from Regis University. He has been featured as a financial expert on CNBC and in the Financial Times, Barron’s, and InvestmentNews.TMFReubenGBrewerStocks MentionedAres CapitalNASDAQ: ARCC$17.75(-1.50%)-$0.27*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.