Ahead of the Bell: American Capital downgraded

"We believe the current expected forward dividend yield of 16.5 percent does not properly reflect relatively low dividend coverage from recurring cash earnings and American Capital's limited investment capacity," Ballan wrote in a note to clients.

Elsewhere, Friedman, Billings, Ramsey & Co. analyst Scott Valentin reiterated an "Underperform" rating on the shares, "reflecting our belief that asset write-downs will impair book value, and that fewer realizations of gains, higher funding costs, and limited availability of capital will limit net operating income growth and return-on-equities, thus negatively impacting dividend growth prospects."

Late Monday, the Bethesda, Md.-based company affirmed its 2008 dividend forecast of $4.19 per share and fourth-quarter dividend forecast of $1.10 per share. Furthermore, American Capital reiterated that it plans to roll over more than $500 million of ordinary taxable income and net long-term capital gains from 2008 to pay dividends in 2009.