Prospect Capital Corp (PSEC)

[kybec29]

I'm fairly new to investing (26 yrs and max out my 401k and Roth) and came across a stock that I don't quite understand. This stock, PSEC, caught my attention because it just raised its divident for the 18th consecutive quarter. It is yielding almost 20%. Does anyone own this or think its a good idea for a small portion of my portfolio?

Prospect Capital Declares 18th Consecutive Quarterly Dividend Increase, Representing a 17.5% Current Dividend Yield - Yahoo! Finance

 

[CybrMike]

Appears to be an investment company (i.e., they invest in private and microcap public companies). You'd have to dig into their filings and such to figure out exactly what companies they own and in which industries.

Be hard to judge how they are doing unless you understood exactly who they own.

Typically though, the smaller companies have a harder go of things in a recession.

20% dividend is pretty tantalizing though.

 

[terminator]

It is a business development company (BDC). Like REITs they are required to payout most of their earnings to shareholders. Under the Investment Company Act they are limited to 1:1 leverage.

PSEC is one of the better BDC's, but they are also priced that way relative to their peers. They are trading at about 60% of NAV which sounds cheap (and would have been in the past) but there are a lot that are cheaper.

There's really no shortcut -- you need to identify and research other BDC's to understand the differences between them. Some have a lot of low cost, long term SBA debt. Some have bank lines coming due or being amortized. Some have a lot of equity in their portfolio. Some own mostly senior secured debt. Some amortize their loans over short periods. Some collect a lot of PIK (payment in kind) interest. All of them determine valuations themselves since they hold mostly Level 3 assets. They have different levels of leverage from none to over 100% (i.e. covenant and Investment Act violations). Some pseudo-leverage themselves either by investing in other leverages entities or buying CDO/CLO tranches.

There are a lot of differences. The only third party I've seen that does a good job with them is Stifel Nicolaus -- they have some good summary reports.

 

[kybec29]

new article posted on seeking alpha...

Prospect Capital: A Relatively Safe Dividend Yield

[link removed]

I dont participate in options so i'm just looking at this as a buy and hold for the dividend. Still haven't bought in yet.

 

[jimnjana]

I would not invest in PSEC or other BDCs until you understand what they are. Just because PSEC has a 20% yield does not make it a good BDC. Look at how the dividend is supported.

Jim