Ares Capital (NASDAQ:ARCC – Get Free Report) and Chicago Atlantic BDC (NASDAQ:LIEN – Get Free Report) are both finance companies, but which is the better business? We will contrast the two companies based on the strength of their valuation, earnings, analyst recommendations, institutional ownership, dividends, profitability and risk.
Institutional & Insider Ownership
27.4% of Ares Capital shares are owned by institutional investors. Comparatively, 4.4% of Chicago Atlantic BDC shares are owned by institutional investors. 0.5% of Ares Capital shares are owned by company insiders. Comparatively, 16.9% of Chicago Atlantic BDC shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.
Analyst Recommendations
This is a breakdown of recent ratings and target prices for Ares Capital and Chicago Atlantic BDC, as provided by MarketBeat.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| Ares Capital | 0 | 2 | 9 | 0 | 2.82 |
| Chicago Atlantic BDC | 0 | 0 | 0 | 1 | 4.00 |
Dividends
Ares Capital pays an annual dividend of $1.92 per share and has a dividend yield of 10.2%. Chicago Atlantic BDC pays an annual dividend of $1.36 per share and has a dividend yield of 13.9%. Ares Capital pays out 117.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Chicago Atlantic BDC pays out 90.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Chicago Atlantic BDC is clearly the better dividend stock, given its higher yield and lower payout ratio.
Valuation and Earnings
This table compares Ares Capital and Chicago Atlantic BDC”s revenue, earnings per share (EPS) and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio | |
| Ares Capital | $3.05 billion | 4.42 | $1.30 billion | $1.63 | 11.53 |
| Chicago Atlantic BDC | $54.30 million | 4.11 | $33.28 million | $1.50 | 6.53 |
Ares Capital has higher revenue and earnings than Chicago Atlantic BDC. Chicago Atlantic 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.
Volatility & Risk
Ares Capital has a beta of 0.56, suggesting that its stock price is 44% less volatile than the S&P 500. Comparatively, Chicago Atlantic BDC has a beta of 0.28, suggesting that its stock price is 72% less volatile than the S&P 500.
Profitability
This table compares Ares Capital and Chicago Atlantic BDC’s net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| Ares Capital | 37.30% | 9.85% | 4.59% |
| Chicago Atlantic BDC | 57.88% | 11.67% | 10.30% |
Summary
Ares Capital beats Chicago Atlantic BDC on 9 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 Chicago Atlantic BDC
Chicago Atlantic BDC Inc. is a specialty finance company which has elected to be regulated as a business development company. Its investment objective is to maximize risk-adjusted returns on equity for its stockholders by investing primarily in direct loans to privately held middle-market companies, with a primary focus on cannabis companies. Chicago Atlantic BDC Inc., formerly known as CHICAGO ATLNTIC, is based in NEW YORK.
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