Ares Dynamic Credit Allocation Fund Inc's Dividend Analysis
An In-depth Look at ARDC's Dividend Performance and Sustainability
Ares Dynamic Credit Allocation Fund Inc (NYSE:ARDC) recently announced a dividend of $0.12 per share, payable on October 31, 2023, with the ex-dividend date set for October 19, 2023. As investors anticipate this upcoming payment, it's crucial to examine the company's dividend history, yield, and growth rates. Utilizing data from GuruFocus, we delve into Ares Dynamic Credit Allocation Fund Inc's dividend performance and assess its sustainability.
Understanding Ares Dynamic Credit Allocation Fund Inc's Business Model
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Ares Dynamic Credit Allocation Fund Inc is a diversified management investment company operating under a closed-end structure. The company's primary goal is to generate an attractive level of total return, primarily through current income and, secondarily, through capital appreciation. ARDC's investment portfolio comprises senior secured loans made to companies whose debt is rated below investment grade, high yield corporate bonds, other fixed-income instruments of a similar nature, and securities of collateralized loan obligations (CLOs).
A Glimpse at Ares Dynamic Credit Allocation Fund Inc's Dividend History
Since 2017, Ares Dynamic Credit Allocation Fund Inc has maintained a consistent dividend payment record, with dividends currently distributed on a monthly basis. The chart below shows the annual Dividends Per Share for tracking historical trends.
Breaking Down Ares Dynamic Credit Allocation Fund Inc's Dividend Yield and Growth
As of today, Ares Dynamic Credit Allocation Fund Inc currently has a 12-month trailing dividend yield of 10.53% and a 12-month forward dividend yield of 11.35%. This suggests an expectation of increased dividend payments over the next 12 months.
Over the past three years, Ares Dynamic Credit Allocation Fund Inc's annual dividend growth rate was -2.50%. However, when extended to a five-year horizon, this rate increased significantly to 40.10% per year. Based on the company's dividend yield and five-year growth rate, the 5-year yield on cost of Ares Dynamic Credit Allocation Fund Inc stock as of today is approximately 56.84%.
The Sustainability Question: Payout Ratio and Profitability
The sustainability of a company's dividend is often evaluated through its payout ratio. The dividend payout ratio provides insights into the portion of earnings the company distributes as dividends. A lower ratio suggests that the company retains a significant part of its earnings, thereby ensuring the availability of funds for future growth and unexpected downturns. As of June 30, 2023, Ares Dynamic Credit Allocation Fund Inc's dividend payout ratio is 0.97, indicating potential sustainability concerns.
Ares Dynamic Credit Allocation Fund Inc's profitability rank offers an understanding of the company's earnings prowess relative to its peers. GuruFocus ranks ARDC's profitability 2 out of 10 as of June 30, 2023, suggesting potential sustainability concerns. The company has reported net profit in 5 years out of the past 10 years.
Growth Metrics: The Future Outlook
To ensure the sustainability of dividends, a company must have robust growth metrics. Ares Dynamic Credit Allocation Fund Inc's growth rank of 2 out of 10 suggests that the company has poor growth prospects, which may impact the sustainability of its dividends.
Conclusion
While Ares Dynamic Credit Allocation Fund Inc offers an attractive dividend yield and a history of consistent payments, its low profitability and growth ranks, coupled with a high payout ratio, raise questions about the sustainability of its dividends. Investors should consider these factors in their decision-making process. GuruFocus Premium users can screen for high-dividend yield stocks using the High Dividend Yield Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
