In 1964, Rocky Aoki started a small, Japanese teppanyaki-style restaurant in Manhattan named Benihana, or “red flower” in Japanese. The restaurant became one of the best-known Japanese-themed restaurants in the U.S. by the time it went public in 1983. However, legal disputes involving the Aoki family allowed its majority stake to dwindle to about one-third ownership.

Although business was still booming, the internal struggle left the company vulnerable to a buyout. Angelo Gordon saw a golden opportunity to buy the firm, but where would he find financing for such a specialized deal? Gordon used Ares Capital (NSDQ: ARCC), a specialty finance company. He bought the company’s publicly traded wing for $295 million and took it private in 2012.

Ares Capital is a business development company, and BDCs typically have high yields.

BDCs were created because the government wanted to give small and midsize companies an easier way to raise money. So the feds passed the Small Business Investment Incentive Act of 1980. Now these companies can get financing through closed-end funds, and because of their higher risk, they pay high yields—averaging 9%. Ares’s yield is currently 8.7%.

To make BDCs more attractive, the government gave them special tax breaks. So BDCs’ taxes are minimized, and they’re required to distribute 90% of profits to shareholders. In this way they’re set up similarly to real estate investment trusts and master limited partnerships. As with MLPs, those rich distributions are taxed as ordinary income and require filing a Form 1099.

Like other BDCs, Ares lends money and takes equity stakes in companies, and serves companies that can’t find capital through other means. These companies aren’t necessarily in financial distress, and often have strong growth potential and strong cash flows.

Ares’s investments usually come in the form of senior and junior debt loans, ranging from $5 million to $100 million, for medium-sized companies. It has also been known to take equity interests in companies. About 56% of its portfolio is made up of “senior term loans,” or loans that are paid off first in the case of bankruptcy. About 19% is equity stakes in companies and the remainder is debt that’s secondary to senior debt.

Given the steady dividends BDCs pay, their stock prices also can be fairly stable. For example, Ares Capital took a big hit—along with everything else—during the financial crisis, but before and since it has traded mainly between $15 and $20 a share.

Ares recently reported strong fourth-quarter 2014 results that saw net earnings of $153.4 million, or 49 cents per share. It will pay another special dividend of 5 cents to accompany its first-quarter 2015 dividend of 38 cents per share, or $1.52 per share annualized. Both are payable on March 31 to shareholders of record as of March 13.

Last year, Ares paid two special dividends of 5 cents each, bringing its actual trailing 12-month payout to 9.2%. Over the past three years, the company’s dividend has grown at a rate of 3.6% annualized. It currently has a 12-month payout ratio of 79%, which is healthy and likely means more hikes or special payments in the future.

Notable Investments

The company’s current investment portfolio of 204 companies means it’s well diversified, and that’s why it keeps up its strong performance despite shifting economic cycles.

Among those companies is a medical supplies firm, SurgiQuest, which produces the AirSeal Access System that allows doctors “valve free” access to the abdominal cavity during surgery. The system is also able to remove smoke that is caused by lasers or ultrasound. Because it limits the amount of cutting involved, the system reduces patient recovery time and therefore costs. To fund its global expansion and marketing strategy, SurgiQuest secured an $11 million credit facility from Ares.

Ares provides about $8 million in senior and $32 million in junior secured loans to Pelican Products, a company that makes high-quality flashlights and cases used by the military and law enforcement agencies as well as for the private sector. The company also produces high-powered floodlights used in the entertainment industry. Based in the U.S., Pelican has used some of these loans to fund its operations expansion around the world. In the fourth quarter, Ares made $1.4 billion in new investments in 18 new companies, 10 existing portfolio companies and four companies through senior loans funds.

Among the investments that closed during the quarter, Ares helped fund Freeman Spogli & Co’s acquisition of Plantation Products, a provider of seed. Ares also provided senior loans to help Arlington Capital Partners acquire Zemax, a provider of optical and illumination design software.

With a generous yield of 8.7% and possible bonus dividends, Ares Capital is a buy up to $21.