ARCC

Realty Income (REIT) has underperformed the S&P 500 over the past decade due to share dilution and vulnerability to rising interest rates. Business Development Corporations (BDCs) like Ares Capital may be better income investments as they benefit from higher interest rates, offering yields of 10.3% versus Realty Income's 5.8%. However, both asset classes distribute most earnings as dividends, limiting long-term compound growth potential.

Ares Capital Corporation is scheduled to report Q3 2026 earnings on October 27, with EPS expected to fall 4% year-over-year to 48 cents. While total investment income is projected to remain resilient, the company faces headwinds from lower prepayment activity, elevated operating costs, and declining interest income (-1.2% YoY), though dividend income is expected to rise 9.7%. The company's quantitative model does not support an earnings beat prediction.

Ares Capital (ARCC) currently trades at a 4.3% discount to its net asset value of $19.35 per share, with a 10.4% forward dividend yield. The stock has lost approximately 3.25% of underlying value over six months.

While the discount and high yield present opportunities for income investors, the author recommends waiting for Q3 earnings (Oct. 27) to assess two key metrics: whether realized losses dominate NAV declines and if the nonaccrual rate remains stable at 2.4%. The company's dividend payout ratio is expected to remain around 100% for 2026, exceeding core earnings.