Blue chip dividend stock yields 9.8%, solid dividend coverage, still selling at a discount – ares capital (nasdaq_arcc) _ seeking alpha market risk analyst salary singapore
With higher interest rates on the horizon, high-yield investors should consider repositioning their portfolio to increase allocation to dividend stocks which benefit from higher interest rates to maximize total returns. Managing the risks of organizational accidents I have started a series of reports dedicated to identifying securities which are well positioned to benefit from higher interest rates. Market risk management in banks ppt The following are links to the 3 reports already published on the subject:
Ares Capital Corporation is a leading Business Development company that provides one-stop solutions to meet the distinct and underserved financing needs of private middle-market companies across diverse industries. Global solutions ARCC originates investments in market-leading companies with a history of stable cash flows, proven competitive advantages
and experienced management teams.
ARCC is part of the Ares Management (NYSE: ARES), one of the nation’s largest asset managers, which enables it to leverage the power of the broader Ares platform to access resources, relationships and significant capital markets and research expertise. Definition of stock market Being part of this group provides ARCC with attractive investment opportunities.
The share performance of ARCC over the past 10 years has been remarkable. Market risk reporting On a total return basis (with dividends reinvested), ARCC has returned to its shareholders a 194% return, compared to the S&P 500 just returning 98% during the same period. Risk in stock market ARCC outperformed the S&P 500 by almost 100%.
Instead of fixing high distributions which could be cut in the future, ARES management has in the past elected to pay special dividends to shareholders when its profits are strong. Var market risk I particularly like this conservative approach which separates this great BDC from others. Market risk in banks ppt Since 2012, ARES paid to shareholders an additional dividend of $0.05/share each year and has the potential to continue to do so. Hotel risk management jobs The special dividend is not included in the current 9.8% yield. Market risk analyst jobs south africa A $0.05 dividend would effectively increase the current annual distribution yield of $1.52/share by 3.3%.
BDCs tend to underperform during periods of declining interest rates. Equity risk premium calculator This is why most have lagged the markets in the past few years. Managing market risk Today, the situation looks very different. Market risk ppt A stronger U.S. What is the market risk premium economy coupled with higher interest rates will be very positive for this sector.
ARCC in particular is one of the best BDCs positioned for higher interest rates. Risk of stock market Based on the company’s latest 10-Q SEC filing, “Net Interest Income” is set to increase by $30 million or 7% when LIBOR rate increases by 1%, and by $90 million or 19% when LIBOR rate increases by 2%, which is significant.
It is worth to note that LIBOR rates have been soaring over the last few months and have reached a 7-year high. Weather risk management jobs The reason behind the LIBOR rate rise are the new regulations by the SEC which are causing large institutions to re-allocate their funds out of “prime money market funds” (such as banks’ commercial paper and CDs), and into government debts (such as US Treasury securities or government securities). Market risk policy As the demand for “prime money market funds” falls, this is pushing up LIBOR rates. Market risk management in banks pdf So it looks like ARCC may not have to wait for the U.S. Market risk analysis pdf Fed to hike interest rates to start benefiting. Australia market risk premium 2015 The large spike in LIBOR rates alone could positively impact its profitability as we await new rate hikes by the Fed.
On another front, ARCC management seems to have been preparing themselves to benefit form rate hikes for a while now. Market risk pdf During the past year, the company has been freeing up capital by having more loans mature than being initiated. Market risk management policy This will help book new loans at higher interest rates as interest rates rise.
One of the biggest risks of BDC companies is giving out bad loans which can result in less future income and lower Net Asset Value. What is market risk premium It is worth to note that ARCC loans on non-accrual basis have declined by over 50% in 2016 compared to 2015 and currently only account to 0.7% of the company’s total portfolio.
In May 2016, ARCC announced the acquisition of a related Business Development Company American Capital (NASDAQ: ACAS) in a cash and stock deal valued at $4.0 billion. What does a market risk analyst do ARCC clearly benefits from this transaction because it purchased ACAS shares at a significant discount of 20% of ACAS Net Asset Value. Current market risk premium s&p 500 By combining the two largest BDCs into a company more than twice as big as its closest competitor, Ares will add scale and diversification, giving it the ability to originate larger transactions. Australian market risk premium The merger is expected to also result in a reduction in operating expenses and lower cost of financing which will further drive shareholder value. Market risk premium It is worth to note that Ares acquired Allied Capital a few years back and was very successful in consolidating the company and getting full value out of its assets. How to reduce market risk The scenario will be much the same with ACAS, which will consist of divesting out of non-yielding equity investments and move into yielding assets, giving it the ability to increase its dividend over time.
Investors who buy into ARCC are buying into the largest BDC with a market cap close to $5 billion, in addition to the proven track record and reliable dividend distributions. What is current market risk premium A large market cap has another plus because typically they tend to be less volatile than smaller cap ones. Market risk management pdf Today, ARCC trades at a 7% discount to its Net Asset Value of $16.62 per share based on its recent closing price of $15.54/share. Market risk premium 2016 I consider that the current valuation is attractive and would not be surprised to see the stock trading at a premium to its NAV. Risk of stock market crash Investors tend to reward reliable dividend payers with higher prices as in the case of Main Street Capital Corp. Market risk premium today (NYSE: MAIN) which trades at a 60% premium to NAV.
ARCC is a reliable high dividend company that has proved itself in the hardest times. Market risk example Many refer to this stock as the “Blue Chip” of the BDC sector. Credit risk market risk In my opinion, this stock is well suited for conservative dividend investors who like to buy and hold the long run. What is market risk In a rising interest rate environment, ARCC is set to continue to provide stellar returns and can achieve long-term capital gains, in addition to the hefty 9.8% dividend yield with a potential to grow.
My service High Dividend Opportunities, which is hosted by Seeking Alpha, is dedicated to the high-yield space and includes a managed portfolio targeting a 7-9% overall yield – with a selection of the best high-yield Oil & Gas MLPs, BDCs, U.S. Emerging market risk Property REITs, Preferred Shares, and Closed-End Funds (CEFs). Market risk premium nyu We are currently repositioning our portfolio by allocating funds to those securities that are best positioned to benefit from higher interest rates. Market risk premium 2012 I invite readers for a two-week free trial currently offered by Seeking Alpha to have a close look at our investment strategy and our Top Buy list. What is the current market risk premium For more info, please click here.
Source of images: All taken/compiled from ARCC’s website, Morningstar and Ycharts except if otherwise stated. Market risk analyst 2016 projected dividend is based on 3 declared dividends and assumes no changes from 2015 amounts.
Disclaimer: “High Dividend Opportunities” service is impersonal and does not provide individualized advice or recommendations for any specific subscriber or portfolio, as I have no knowledge of the investor’s individual circumstances. Beta market risk Subscribers/readers should not make any investment decision without conducting their own research and due diligence, and consulting their financial advisor about their specific situation.
I wrote this article myself, and it expresses my own opinions. Risk analysis in stock market I am not receiving compensation for it (other than from Seeking Alpha). Market risk premium calculator I have no business relationship with any company whose stock is mentioned in this article.