Ares Capital upgraded to buy with 9.6% dividend yield amid strong portfolio and rate environment.

Ares Capital (ARCC) has been upgraded to a buy rating due to its attractive 9.6% dividend yield and trading at a rare sub-average premium to its net asset value (NAV). The company is well-positioned for a higher interest rate environment with a $1.5 billion backlog, a floating-rate portfolio, and a new $1 billion commercial paper program. Its portfolio diversification remains strong, with minimal exposure to AI/software risks and solid spillover income supporting distributions. Despite a decline in NAV over three quarters, non-accruals and realized losses are manageable, and earnings continue to cover the dividend, making it a compelling income investment.