<p><strong>Ares Capital</strong> <span class="ticker-mention inline-flex items-center font-bold">(ARCC <span class="ml-1 text-green-900">+0.57%</span>)</span> is a business development company (BDC). It basically makes high-interest-rate loans to smaller businesses that don't have access to cheaper capital. That's good in some ways (note the stock's lofty 9.9% dividend yield). However, it also comes with some big risks.</p>
<p>Here are two things I think could happen in 2026 that would be troubling for dividend investors considering this stock.</p>
<div><img alt="A sign post with three arrows pointing to this way, that way, and the other way." width="880" height="392" src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84NTM5MzYvMjRfMDhfMjctYS1zaWduLXBvc3Qtd2l0aC10aGlzLXdheS10aGUtb3RoZXItd2F5LWFuZC10aGF0LXdheS13cml0dGVuLW9uLWl0LXN1Z2dlc3RpbmctY29uZnVzaW9uLV9tZi1kb3dubG9hZC1nZXR0eWltYWdlcy02NDkyMzY2MzAtMTIwMXg1MzUtOGM2OGFmMy5qcGcmdz0zODQw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84NTM5MzYvMjRfMDhfMjctYS1zaWduLXBvc3Qtd2l0aC10aGlzLXdheS10aGUtb3RoZXItd2F5LWFuZC10aGF0LXdheS13cml0dGVuLW9uLWl0LXN1Z2dlc3RpbmctY29uZnVzaW9uLV9tZi1kb3dubG9hZC1nZXR0eWltYWdlcy02NDkyMzY2MzAtMTIwMXg1MzUtOGM2OGFmMy5qcGcmdz0zODQw"/>
<p>Image source: Getty Images.</p>
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<h2>1. Ares Capital's average interest rate continues to fall</h2>
<p>The Federal Reserve has been cutting interest rates, and there seems to be some support for further cuts in 2026. That's a problem for Ares Capital. In 2025, the interest rates on the loans this business development company had outstanding fell from 11.1% to 10.4%. As interest rates fall, it becomes harder for Ares Capital to support its generous dividend.</p>
<p>The rate Ares Capital charges is falling for two reasons. First, new loans come with lower rates. However, the vast majority of its loans have floating rates, so they rise and fall with the Federal Reserve's interest rate changes. If the bias is toward lower rates in 2026, the income Ares Capital generates will be under pressure.</p><div><div id="foolcom_sidebar_top_container"></div></div>
<h2>2. Ares Capital's dividend could be cut</h2>
<p>The risk of a dividend cut is elevated, as falling interest rates are already pressuring Ares Capital's dividend. I wouldn't be surprised by a dividend cut, given the belt-tightening taking place among consumers. That hints that the economy may not be as strong as it seems. It is entirely possible that the United States will fall into a recession in the near future. In each of the two recessions Ares Capital has lived through, it cut its dividend.</p><div></div>
<section><div><div><div><small><div>Expand</div></small></div><div><img alt="Ares Capital Stock Quote" width="64" height="64" src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vYXJ0L2NvbXBhbnlsb2dvcy9tYXJrL0FSQ0MucG5nJnc9MTI4?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vYXJ0L2NvbXBhbnlsb2dvcy9tYXJrL0FSQ0MucG5nJnc9MTI4"/></div><div><h2>NASDAQ: ARCC</h2><div>Ares Capital</div></div></div><div><div><div>Today's Change</div><div>(0.57%) $0.11</div><div>Current Price</div><div>$19.41</div></div><div></div></div></div><div><div></div><div><h3>Key Data Points</h3><div><div>Market Cap</div><div>$14B</div><div>Day's Range</div><div>$19.20 - $19.47</div><div>52wk Range</div><div>$18.26 - $23.63</div><div>Volume</div><div>5.8M</div><div>Avg Vol</div><div>5.5M</div><div>Gross Margin</div><div>75.68%</div><div>Dividend Yield</div><div>9.95%</div></div></div></div></section>
<p>That said, the dividend is inherently volatile. Falling rates alone could lead to a cut even if there isn't a recession. And so could the fact that nearly 25% of the loan portfolio is in software and services stocks. Investors are increasingly concerned that artificial intelligence (AI) is going to upend the software sector. Even if there is a cut, Ares Capital will still have a large dividend, and it will likely rise again in the future. However, if you need a reliable income stream, this high-yield stock may not be the best option for your portfolio.</p><div><div id="in_line_article_pitch_container"></div></div>
<h2>Know what you own</h2>
<p>Even if Ares Capital's dividend doesn't get cut in 2026, history suggests it will get cut at some point in the future. That's just the nature of business development companies. In the end, Ares Capital is a well-run BDC, but you need to enter 2026 understanding the impact of falling rates and be prepared for the possibility of a dividend cut if the United States falls into a recession.</p><div id="article_pitch_container"></div><div id="promobox_container"></div>

ARCC

<p>Ares Capital (ARCC) is a business development company that provides high-interest loans to smaller businesses. Predictions for 2026 suggest potential challenges for dividend investors, including a continued decline in average interest rates due to Federal Reserve cuts, which could pressure the company's ability to maintain its 9.9% dividend yield. Additionally, there is an elevated risk of a dividend cut, especially if the U.S. economy enters a recession, as Ares Capital has a history of cutting dividends during economic downturns. Investors should be cautious about relying on this high-yield stock for consistent income.</p>

- Ares Capital, a business development company, provides high-interest loans to smaller businesses, but risks a dividend cut due to falling interest rates.  
- The Federal Reserve's potential rate cuts may pressure Ares Capital's income, as their loan interest rates decreased from 11.1% to 10.4% in 2025.  
- If a recession occurs, history suggests Ares Capital may cut its dividend, indicating that while it remains a solid BDC, investors should be cautious about relying on its dividend for steady income.

2 Predictions for Ares Capital in 2026