Contrasting Barings Bdc (NYSE:BBDC) and Ares Capital (NASDAQ:ARCC)

Ares Capital (NASDAQ:ARCC) and Barings Bdc (NYSE:BBDC) are both finance companies, but which is the superior investment? We will contrast the two businesses based on the strength of their institutional ownership, risk, dividends, analyst recommendations, profitability, earnings and valuation.

Risk and Volatility

Ares Capital has a beta of 0.59, meaning that its share price is 41% less volatile than the S&P 500. Comparatively, Barings Bdc has a beta of 0.6, meaning that its share price is 40% less volatile than the S&P 500.

Insider and Institutional Ownership

27.4% of Ares Capital shares are held by institutional investors. Comparatively, 44.1% of Barings Bdc shares are held by institutional investors. 0.5% of Ares Capital shares are held by company insiders. Comparatively, 0.5% of Barings Bdc shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company will outperform the market over the long term.

Profitability

This table compares Ares Capital and Barings 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%
Barings Bdc	36.50%	10.05%	4.27%

Dividends

Ares Capital pays an annual dividend of $1.92 per share and has a dividend yield of 10.1%. Barings Bdc pays an annual dividend of $1.04 per share and has a dividend yield of 12.1%. 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. Barings Bdc pays out 107.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Barings Bdc has increased its dividend for 3 consecutive years. Barings Bdc is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Recommendations

This is a summary of recent ratings and recommmendations for Ares Capital and Barings Bdc, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Ares Capital	0	2	7	0	2.78
Barings Bdc	0	1	3	0	2.75

Ares Capital currently has a consensus target price of $22.00, suggesting a potential upside of 16.09%. Barings Bdc has a consensus target price of $9.67, suggesting a potential upside of 12.80%. Given Ares Capital’s stronger consensus rating and higher possible upside, analysts plainly believe Ares Capital is more favorable than Barings Bdc.

Earnings & Valuation

This table compares Ares Capital and Barings 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	4.46	$1.30 billion	$1.86	10.19
Barings Bdc	$279.21 million	3.21	$101.92 million	$0.97	8.84

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

Summary

Ares Capital beats Barings Bdc on 11 of the 17 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 Barings Bdc

Barings BDC, Inc. is a publicly traded, externally managed investment company that has elected to be treated as a business development company under the Investment Company Act of 1940. It seeks to invest primarily in senior secured loans, first lien debt, unitranche, second lien debt, subordinated debt, equity co-investments and senior secured private debt investments in private middle-market companies that operate across a wide range of industries. It specializes in mezzanine, leveraged buyouts, management buyouts, ESOPs, change of control transactions, acquisition financings, growth financing, and recapitalizations in lower middle market, mature, and later stage companies. It invests in manufacturing and distribution; business services and technology; transportation and logistics; consumer product and services. It invests in United States. It invests in companies with EBITDA of $10 million to $75 million, typically in private equity sponsor backed.