Better Dividend Stock: Ares Capital vs. Verizon Communications

Ares Capital offers an ultra-high yield (≈9.5%), 16 consecutive years of stable or rising quarterly payouts and the structural benefit of a BDC (90% income distribution), plus a large addressable market (~$5.4 trillion) and historical outperformance versus the S&P; management says transaction activity is accelerating after a softer 2025. Verizon yields ≈6.8% with 19 years of dividend raises, rising free cash flow ($15.8bn in the first nine months of 2025 vs. $14.5bn a year earlier), a low forward P/E (8.5) and potential longer-term upside from cost restructuring and 6G leadership despite modest near-term revenue and earnings growth and high capex. The author prefers Ares for higher yield and growth prospects but recommends owning both; disclosure notes the Motley Fool and author hold positions in the names mentioned.

Analysis

The article compares two high-yield income names: Ares Capital (ARCC) and Verizon Communications (VZ). Ares offers an ultra-high dividend yield of 9.5% and has 16 consecutive years of stable or increasing quarterly dividends; as a BDC it must distribute at least 90% of income and management cites a roughly $5.4 trillion addressable market for direct lending. The firm has historically outperformed the S&P 500 since its IPO but noted that 2025 performance softened before CEO Kort Schnabel reported a sequential acceleration in transaction reviews and the busiest month (September) of deal reviews so far this year.

Verizon yields a forward 6.8% and has increased dividends for 19 consecutive years; free cash flow rose to $15.8 billion in the first nine months of 2025 from $14.5 billion a year earlier. The stock trades at a forward P/E of 8.5, below peers, and new CEO Dan Shulman is pushing aggressive cost transformation while investing in long-term 6G initiatives expected by 2030. Near-term constraints include modest revenue and adjusted-earnings growth, high capital intensity, and competitive subscriber churn.

The author prefers Ares for yield and growth prospects but recommends owning both; overall sentiment is mildly positive with limited market-impact signaling. Disclosures show the author and Motley Fool hold positions, which should be factored into any investment decision.

Key Decisions for Investors

• Consider overweighting Ares Capital relative to Verizon to capture the 9.5% yield and improving direct‑lending deal flow, but cap position size until multiple quarters confirm sustained transaction acceleration and stable earnings distributions
• Maintain or add a measured position in Verizon for the 6.8% yield, attractive 8.5 forward P/E and rising free cash flow, while actively monitoring execution of cost-transformation plans, capex levels and subscriber/revenue trends
• Use both names for yield diversification rather than concentrating in one security, and factor in the disclosed positions by the author/Motley Fool as a potential source of bias when sizing allocations