Ares Capital Corp. (symbol ARCC on Nasdaq; www.arescapitalcorp.com) provides debt and equity financing to U.S. mid-sized companies and venture capital-backed businesses. Billionaire Tony Ressler heads Ares and its affiliates.

Ares Capital initiates and invests in senior secured loans, mezzanine debt and, to a lesser extent, stock investments.

The company’s loans generally entail higher risk. For example, mezzanine financing is a mixture of debt and equity financing private companies use to fund expansion.

Mezzanine debt gives the lender the right to convert the debt to equity if the borrower defaults. Mezzanine financing typically involves less due diligence by the lender, and the borrower puts up little or no collateral.

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High yield stocks: 9.3% dividend yield reflects high risk and stiff competition for Ares

As of December 31, 2014, Ares Capital had $9.0 billion of assets, of which $8.2 billion was in debt and other income-producing securities, across 205 investments in its portfolio.

Ares Capital holds a very high-risk portfolio of assets. It would drop quickly if stock markets fell. Even if the stock market stays firm, Ares faces rising competition for profitable deals with high-risk companies.

The stock’s high 9.3% dividend yield reflects that risk.

TSI Network recommendation: SELL.