Updated 3/5/25
Ares Management Corporation (NYSE: ARES) is a major player in the alternative asset management space, specializing in credit, private equity, and real assets. With a market cap hovering around $33 billion, Ares has built a solid reputation for delivering strong investment performance across various market cycles.
The company has also gained attention for its dividend payouts, attracting income investors who value steady cash flow. However, there are a few red flags, particularly around its high payout ratio and valuation levels, that investors should consider. Let’s take a closer look at Ares’ dividend profile, financial standing, and potential risks to get a clearer picture of whether it’s a good fit for dividend-focused portfolios.
Key Dividend Metrics
🔹 Forward Dividend Yield: 2.75%
🔹 Trailing Dividend Yield: 2.31%
🔹 5-Year Average Dividend Yield: 2.86%
🔹 Annual Dividend Rate: $4.48 (forward), $3.72 (trailing)
🔹 Payout Ratio: 182.35%
🔹 Ex-Dividend Date: March 17, 2025
🔹 Dividend Payment Date: March 31, 2025
Dividend Overview
At first glance, Ares’ 2.75% dividend yield looks reasonable, though not exceptionally high. The bigger concern is its payout ratio, which currently sits at an eye-watering 182.35%. This number suggests that Ares is paying out significantly more in dividends than it’s earning, which isn’t a sustainable long-term strategy unless the company continues to generate robust cash flow.
On the plus side, Ares has maintained a consistent dividend payment schedule with no recent cuts, which speaks to management’s commitment to rewarding shareholders. The next dividend payout is scheduled for March 31, 2025, with an ex-dividend date of March 17, 2025. Investors looking to capture the next payment need to own the stock before the ex-dividend date.
Dividend Growth and Safety
Ares has done a respectable job of maintaining its dividend, but growth has slowed. Its 5-year average dividend yield of 2.86% suggests that while the yield remains attractive, it hasn’t seen significant expansion.
The high payout ratio is the most pressing issue here. Ares is distributing more than 180% of its earnings, which isn’t sustainable over the long haul. This means that unless earnings and cash flow continue to grow at a healthy pace, the dividend could come under pressure.
Another challenge is the company’s debt load. With a debt-to-equity ratio of 177.71%, Ares is highly leveraged. Companies with heavy debt burdens often have less flexibility to increase dividends, especially in rising interest rate environments.
For investors focused on dividend stability, it’s important to keep an eye on Ares’ earnings growth and free cash flow. Right now, its levered free cash flow stands at $569.87 million, which is decent but not overwhelmingly strong given its financial obligations.
Chart Analysis
The price action of Ares Management Corporation (ARES) over the past year has been in a strong uptrend, but recent price movements indicate potential weakness. The stock hit a peak above $200 before pulling back sharply, now sitting at $163.00 as of March 5, 2025.
Moving Averages
The 50-day moving average (orange line) had been acting as a strong support level for much of the uptrend, but the recent decline has caused the stock to break below it. This suggests a possible shift in momentum. The 200-day moving average (blue line) is still trending upward and sits around the $160 level, which could serve as a key support zone. If the stock holds above this level, it may indicate buyers stepping in at long-term support.
Volume Analysis
The volume profile reveals increased selling pressure in recent weeks. Notably, there were a few high-volume red bars during the sharp pullback, indicating strong selling interest. However, there are also some green volume spikes, suggesting buyers are attempting to defend certain price levels.
Relative Strength Index (RSI)
The RSI, displayed at the bottom of the chart, has been declining and now sits in the lower range. This suggests that the stock is moving closer to oversold territory. If the RSI continues to drop below 30, it could signal a potential reversal or at least a temporary relief rally.
Recent Price Action
Looking at the last five candlesticks, there’s been a mix of lower highs and lower lows, indicating continued downside pressure. The wicks on some of the recent candles suggest intraday volatility, with buyers stepping in at lower levels but not sustaining momentum.
If ARES remains below its 50-day moving average, it could signal a short-term bearish trend. However, the 200-day moving average is the key level to watch, as it could determine whether this pullback is just a correction in a broader uptrend or the start of a more prolonged downturn.
Analyst Ratings
📈 Upgrades:
🔹 In December 2024, Michael Brown from Keefe, Bruyette & Woods upgraded ARES from Market Perform to Outperform, raising the price target from $166 to $202. This upgrade was driven by Ares Management’s strong financial performance and optimistic growth projections. Analysts pointed to the firm’s ability to expand its asset base and maintain consistent fee-related earnings, making it an attractive investment in the alternative asset space.
🔹 Around the same time, Wells Fargo also revised its outlook on ARES, with analyst Michael Brown moving the stock from Equalweight to Overweight while adjusting the price target from $176 to $212. The reasoning behind the upgrade was Ares’ increasing market share in private credit and real assets, areas expected to see high institutional demand. The stock’s relative underperformance versus competitors at the time also provided an opportunity for revaluation.
📉 Downgrades:
🔸 On February 6, 2025, JMP Securities took a more cautious stance, maintaining a Hold rating on ARES. The downgrade was primarily due to valuation concerns, as the stock had been trading at a premium compared to its historical price-to-earnings ratio. Analysts noted that while the company remains well-positioned for long-term growth, short-term gains could be limited unless earnings growth accelerates.
🔸 Earlier, in November 2024, Deutsche Bank reiterated its Hold rating, slightly adjusting its price target from $148 to $146. The move reflected concerns over broader market conditions, potential compression in asset management fees, and heightened competition in the alternative investment space.
🎯 Consensus Price Target:
Analysts maintain a moderate buy outlook on ARES, with a consensus price target of approximately $176.17. While some view the stock as overvalued in the short term, others remain optimistic about its long-term growth potential due to strong institutional demand and expanding investment strategies.
Earnings Report Summary
Ares Management wrapped up 2024 on a high note, posting solid growth across key financial metrics while continuing to expand its asset management business. The latest earnings report highlights strong revenue growth, increasing assets under management, and a sizable dividend hike—showing that the company remains on a steady path forward.
Revenue and Earnings Performance
The company brought in $1.26 billion in revenue for the fourth quarter, a solid 19% jump from the same period last year. That growth was driven by higher fee income, strong fundraising, and strategic investments. Net income came in at $177.3 million, reflecting a slight increase over the previous year.
On a per-share basis, earnings landed at $0.72, while after-tax realized income reached $434.7 million, or $1.23 per share. Ares also reported fee-related earnings of $396.2 million, marking a 7.5% increase year-over-year.
Growing Assets and Fundraising Strength
Ares continues to grow its assets under management (AUM) at an impressive pace. By the end of 2024, total AUM hit $484.4 billion, up 16% from the prior year. A big part of that jump came from the acquisition of GLP Capital Partners International, which added $44 billion in assets to the firm’s portfolio.
Fundraising was another major highlight. The firm pulled in a record $28.3 billion in the fourth quarter alone, bringing its total for the year to $92.7 billion—a significant improvement from previous years. With a strong pipeline of new funds, Ares looks well-positioned to keep growing in the coming quarters.
Leadership Changes and Strategic Direction
As part of its expansion efforts, Ares promoted Kipp deVeer and Blair Jacobson to co-presidents, adding more leadership depth at a key time for the company. Both have been with the firm for years and are expected to play a major role in shaping Ares’ next phase of growth.
Dividend Increase and Future Outlook
One of the most notable takeaways from the earnings report was the 20% dividend hike, pushing the quarterly payout to $1.12 per share. This increase reflects the company’s confidence in its earnings power and commitment to delivering shareholder value.
Looking ahead, Ares is focusing on alternative investments, particularly in real estate, digital infrastructure, and insurance. With $133 billion in dry powder ready to be deployed, the firm has plenty of capital to seize new opportunities and expand its footprint even further.
Financial Health and Stability
Ares operates in a capital-intensive business, and that’s reflected in its balance sheet. It holds $2.74 billion in cash, which provides some financial breathing room, but its total debt stands at a hefty $13.15 billion.
The company’s profitability metrics paint a mixed picture. While its profit margin sits at 11.94% and its operating margin at 23.83%, its return on assets (ROA) is just 2.50%, which is low for a company of its size. However, its return on equity (ROE) of 17.89% suggests that it’s still generating strong returns for shareholders.
One positive takeaway is the company’s revenue growth. Ares saw a 19.5% year-over-year increase in revenue, which shows that demand for its asset management services remains strong. However, quarterly earnings growth came in at just 1.90%, suggesting that profitability isn’t expanding at the same pace as revenue.
Valuation and Stock Performance
From a valuation standpoint, Ares is trading at a premium, which could limit its upside potential.
Its trailing price-to-earnings (P/E) ratio is 79.90, which is quite high, even for a financial services firm. The forward P/E drops to 31.65, indicating expectations of future earnings growth, but it’s still on the expensive side compared to some peers in the asset management sector.
Other valuation measures also suggest the stock is richly priced:
- Price-to-sales ratio: 6.22
- Price-to-book ratio: 16.23
- Enterprise value-to-EBITDA: 18.95
These numbers indicate that investors are paying a premium for Ares shares relative to its earnings and book value.
Looking at recent stock performance, Ares has seen some volatility. The stock hit a 52-week high of $200.49 but also dipped to a low of $125.23 during the past year. It’s currently trading around $161.15 pre-market, which is below its 50-day moving average of $182.79 but slightly above its 200-day moving average of $160.26. This suggests that while the stock has experienced some short-term weakness, its long-term support level remains intact.
Risks and Considerations
High Payout Ratio
Ares’ 182.35% payout ratio is a major concern. A payout this high means the company is either relying on debt or pulling from reserves to fund dividends, which isn’t a sustainable approach. If earnings don’t grow significantly, a dividend cut could become necessary down the line.
Debt Burden
With a debt-to-equity ratio of nearly 178%, Ares is carrying a substantial amount of leverage. While this isn’t uncommon for asset managers, it does add financial risk. If borrowing costs rise or the market environment shifts, Ares could face pressure to reduce its dividend.
Expensive Valuation
Ares’ high P/E ratio and premium pricing suggest that much of its future growth is already priced into the stock. If earnings disappoint or the broader market experiences a downturn, the stock could see a pullback.
Market Sensitivity
As an alternative asset manager, Ares is heavily influenced by economic conditions and financial markets. A slowdown in private equity or credit markets could impact its revenue and earnings, making it harder to sustain dividend payments.
Final Thoughts
Ares Management is a well-established firm with a strong presence in the alternative asset management space. It has consistently paid dividends and currently offers a solid 2.75% yield.
However, its high payout ratio and elevated debt levels make its dividend safety questionable in the long run. The company will need to continue growing earnings and cash flow at a healthy rate to maintain and increase its dividend payments.
For investors looking for dividend income, Ares may be a suitable option in a well-diversified portfolio, but it’s not without risks. Keeping an eye on earnings growth, free cash flow, and debt levels will be crucial in assessing whether this dividend remains stable over time.
Recent Comments