These 2 High-Yield Stocks Could Thrive If the Fed Starts Hiking Rates Again
Ares Capital (ARCC) and Main Street Capital (MAIN) reported low non-accrual loans and strong earnings, positioning them for potential Fed rate hikes. ARCC's non-accruals were 2.4% of amortized cost, below the median, and it maintains $6B in liquidity. MAIN's non-accruals were 1.1% at fair value, and its NAV rose to $33.92 per share. Both offer high yields, near 10% for ARCC and high single digits for MAIN.
How this was made
The 30-second read
Why it matters
Both firms appear financially resilient, positioning them as attractive high‑yield options if the Federal Reserve resumes rate hikes.
Market read
Provides a snapshot of credit quality and yield potential for two major BDCs, useful for yield‑focused investors.
What to watch
Potential impact of slowing deal flow on future loan origination volumes.
Background
The article reviews recent quarterly metrics for two large business development companies, Ares Capital (ARCC) and Main Street Capital (MAIN), emphasizing their low non‑accrual rates and dividend coverage.
Ticker impact
Ares Capital reported non‑accrual loans at 2.4% of amortized cost and $0.47 core earnings per share for the quarter.
Modest upside potential if Fed hikes increase floating‑rate income.
Low non‑accruals and strong liquidity support dividend coverage, making the stock attractive in a higher‑rate environment.
Main Street Capital posted 1.1% fair‑value non‑accruals and $1.04 distributable net investment income per share for the quarter.
Potential modest price appreciation if investors seek high‑yield BDCs amid rate hikes.
Low non‑accrual rate and rising NAV indicate durability, supporting the stock in a rising‑rate scenario.
Market effects
Highlights resilience of high‑yield BDCs, may attract yield‑seeking investors if rates rise.
U.S. BDC sector could see modest inflows.
Limited to investors focused on U.S. high‑yield credit.
Counterpoint
If rate hikes increase borrower stress, BDC credit quality could deteriorate faster than indicated.
Key entities
- CompanyAres Capital
Largest publicly traded BDC by net assets.
- CompanyMain Street Capital
Mid‑market BDC focusing on debt and equity investments.
