Is Ares Capital Stock a Buy Now?
The big draw for investors in Ares Capital (NASDAQ: ARCC) is its huge 9.2% dividend yield. To put that into perspective, the S 500 (SNPINDEX: ^GSPC) only offers a yield of about 1.1%, and the average financial stock is at 1.6% or so. But before you run out and buy Ares Capital, you need to understand the risks that come along with that lofty yield.
Ares Capital operates in the finance sector. However, as a business development company (BDC), it has a very specific corporate structure and purpose. Like a real estate investment trust (REIT), a BDC can avoid corporate-level taxation if it pays out at least 90% of its taxable income as dividends.
The trade-off for investors is that they have to treat the dividend as if it were earned income. Still, the entire purpose of a BDC is to pay dividends. That's the good news.
Source Fool.com
