Here's Why I Keep Buying This 10%-Yielding Dividend Stock
2026-08-01 10:15
•Matt Dilallo •The Motley Fool
•••• • Axe Cap view
Why a 10% Yield Demands Your Attention Despite Risks
High dividend yields like Ares Capital’s rarely come without trade-offs, but here’s why it still makes sense.
Ares Capital’s 10% dividend yield grabs headlines, especially against the S&P 500’s 1.1%. Its status as a business development company means it must pay out most of its income, explaining the juicy yield. The solid track record—17 years of consistent or rising dividends—shows discipline. But the recent dip in core earnings is a warning sign. The company leans on realized gains to cover dividends, which isn’t as stable as earnings from ongoing operations. For South African investors, this points to USD/ZAR risk: a weaker rand would amplify USD income, while a stronger rand might erode it. If the rand strengthens or credit conditions worsen globally, ARCC’s payouts could be pressured. Still, for yield-focused portfolios, it’s a rare find worth watching closely. this is just our opinion and not financial advice
Add ARCC cautiously as a yield play but keep an eye on rand movements and credit risk; trim if earnings fail to recover since the dividend relies heavily on gains. Favor USD/ZAR hedging to manage currency swings.
- ARCC
- USD/ZAR
- Core earnings deterioration
- Rand appreciation reducing rand-denominated income
6/10
Ares Capital (ARCC) offers a 10%+ dividend yield, significantly higher than the S&P 500's 1.1%. As a BDC required to distribute 90% of taxable income, the high yield is justified. The company has maintained or raised its dividend for 17 consecutive years with minimal losses on its $73 billion in cumulative investments. Despite recent core earnings dipping slightly below dividend payments, realized gains have more than compensated, and the company carries forward $1.38 per share in taxable income from the previous year.
Our take is based on reporting first published by The Motley Fool.