Ares Capital (NASDAQ:ARCC) and The Bank of New York Mellon (NYSE:BK) are both finance companies, but which is the superior stock? We will compare the two businesses based on the strength of their institutional ownership, valuation, risk, profitability, dividends, earnings and analyst recommendations.
Valuation & Earnings
This table compares Ares Capital and The Bank of New York Mellon's gross revenue, earnings per share and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio |
|---|
| Ares Capital | $1.53 billion | 3.84 | $793 million | $1.89 | 7.34 |
| The Bank of New York Mellon | $20.77 billion | 1.44 | $4.44 billion | $4.02 | 8.41 |
The Bank of New York Mellon has higher revenue and earnings than Ares Capital. Ares Capital is trading at a lower price-to-earnings ratio than The Bank of New York Mellon, indicating that it is currently the more affordable of the two stocks.
Analyst Recommendations
This is a breakdown of recent ratings and price targets for Ares Capital and The Bank of New York Mellon, as reported by MarketBeat.com.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score |
|---|
| Ares Capital | 0 | 0 | 10 | 0 | 3.00 |
| The Bank of New York Mellon | 1 | 8 | 9 | 0 | 2.44 |
Ares Capital currently has a consensus price target of $16.3750, suggesting a potential upside of 17.98%. The Bank of New York Mellon has a consensus price target of $45.1563, suggesting a potential upside of 33.64%. Given The Bank of New York Mellon's higher probable upside, analysts clearly believe The Bank of New York Mellon is more favorable than Ares Capital.
Profitability
This table compares Ares Capital and The Bank of New York Mellon's net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets |
|---|
| Ares Capital | 2.95% | 10.45% | 4.92% |
| The Bank of New York Mellon | 23.09% | 9.89% | 0.89% |
Insider & Institutional Ownership
32.1% of Ares Capital shares are owned by institutional investors. Comparatively, 82.1% of The Bank of New York Mellon shares are owned by institutional investors. 0.6% of Ares Capital shares are owned by insiders. Comparatively, 0.1% of The Bank of New York Mellon shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.
Risk and Volatility
Ares Capital has a beta of 1.14, meaning that its share price is 14% more volatile than the S&P 500. Comparatively, The Bank of New York Mellon has a beta of 1.04, meaning that its share price is 4% more volatile than the S&P 500.
Dividends
Ares Capital pays an annual dividend of $1.60 per share and has a dividend yield of 11.5%. The Bank of New York Mellon pays an annual dividend of $1.24 per share and has a dividend yield of 3.7%. Ares Capital pays out 84.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. The Bank of New York Mellon pays out 30.8% of its earnings in the form of a dividend. Ares Capital has raised its dividend for 1 consecutive years. Ares Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.
Summary
Ares Capital beats The Bank of New York Mellon on 10 of the 17 factors compared between the two stocks.
