Contrasting Kayne Anderson BDC (NYSE:KBDC) & Ares Capital (NASDAQ:ARCC)

Ares Capital (NASDAQ:ARCC) and Kayne Anderson BDC (NYSE:KBDC) are both finance companies, but which is the better investment? We will compare the two businesses based on the strength of their valuation, risk, analyst recommendations, profitability, institutional ownership, dividends and earnings.

Volatility & Risk

Ares Capital has a beta of 0.59, meaning that its share price is 41% less volatile than the S&P 500. Comparatively, Kayne Anderson BDC has a beta of 0.24, meaning that its share price is 76% less volatile than the S&P 500.

Analyst Recommendations

This is a summary of current ratings for Ares Capital and Kayne Anderson BDC, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Ares Capital	0	2	7	0	2.78
Kayne Anderson BDC	0	1	3	0	2.75

Ares Capital presently has a consensus target price of $21.38, suggesting a potential upside of 19.15%. Kayne Anderson BDC has a consensus target price of $15.00, suggesting a potential upside of 9.68%. Given Ares Capital’s stronger consensus rating and higher possible upside, analysts clearly believe Ares Capital is more favorable than Kayne Anderson BDC.

Profitability

This table compares Ares Capital and Kayne Anderson BDC’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Ares Capital	42.56%	9.89%	4.66%
Kayne Anderson BDC	39.74%	10.23%	5.15%

Dividends

Ares Capital pays an annual dividend of $1.92 per share and has a dividend yield of 10.7%. Kayne Anderson BDC pays an annual dividend of $1.60 per share and has a dividend yield of 11.7%. Ares Capital pays out 103.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Kayne Anderson BDC pays out 120.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Institutional & Insider Ownership

27.4% of Ares Capital shares are held by institutional investors. 0.5% of Ares Capital shares are held by company insiders. Comparatively, 3.2% of Kayne Anderson BDC shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Earnings and Valuation

This table compares Ares Capital and Kayne Anderson BDC”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Ares Capital	$3.05 billion	4.22	$1.30 billion	$1.86	9.65
Kayne Anderson BDC	$235.82 million	3.88	$93.71 million	$1.33	10.28

Ares Capital has higher revenue and earnings than Kayne Anderson BDC. Ares Capital is trading at a lower price-to-earnings ratio than Kayne Anderson BDC, indicating that it is currently the more affordable of the two stocks.

Summary

Ares Capital beats Kayne Anderson BDC on 11 of the 16 factors compared between the two stocks.

About Ares Capital

Ares Capital Corporation is a business development company specializing in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies. It also makes growth capital and general refinancing. It prefers to make investments in companies engaged in the basic and growth manufacturing, business services, consumer products, health care products and services, and information technology service sectors. The fund will also consider investments in industries such as restaurants, retail, oil and gas, and technology sectors. It focuses on investments in Northeast, Mid-Atlantic, Southeast and Southwest regions from its New York office, the Midwest region, from the Chicago office, and the Western region from the Los Angeles office. The fund typically invests between $20 million and $200 million and a maximum of $400 million in companies with an EBITDA between $10 million and $250 million. It makes debt investments between $10 million and $100 million The fund invests through revolvers, first lien loans, warrants, unitranche structures, second lien loans, mezzanine debt, private high yield, junior capital, subordinated debt, and non-control preferred and common equity. The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically considers the purchase of stressed and discounted debt positions. The fund prefers to be an agent and/or lead the transactions in which it invests. The fund also seeks board representation in its portfolio companies.

About Kayne Anderson BDC

Kayne Anderson BDC Inc. is a business development company which invests primarily in first lien senior secured loans, with a secondary focus on unitranche and split-lien loans to middle market companies. Kayne Anderson BDC Inc. is based in CHICAGO.