Seeking Alpha
Long-term horizon, dividend investing, mREITs, BDCs
Profile| Send Message|
( followers)  

Summary

  • PSEC had an underpayment (overpayment) of net investment income (‘NII’) of ($8.6) million for the fiscal first and second quarters of 2014 (based on GAAP methodologies).
  • PSEC had an underpayment (overpayment) of net investment company taxable income (‘ICTI') of $2.4 million for the fiscal first and second quarters of 2014 (based on IRC methodologies).
  • TEST 1 (based on PSEC’s EPS) showed some signs the current dividend could be vulnerable if this was the only factor the company looked at.
  • TEST 2 (based on PSEC’s NII per share) showed a dividend cut is a fairly low probability through at least the fiscal first-half of 2015 (through December 2014).

Author's Note: This two-part article is a very detailed look at PSEC's dividend and net asset value ('NAV') sustainability. I perform this detailed analysis for readers who anticipate/want such an analysis performed each quarter. For readers who just want the summarized conclusions/results, I would suggest to scroll down to the "Conclusions Drawn" section at the bottom of each part of the article.

Focus of Article:

The focus of this article is to provide a detailed analysis with supporting documentation (via two tests) on the dividend and net asset value ('NAV') sustainability of Prospect Capital Corp. (NASDAQ:PSEC). This analysis will be provided after a brief overview of the following two topics: 1) PSEC's regulated investment company ('RIC') classification per the Internal Revenue Code ('IRC'); and 2) a comparison between the company's undistributed net investment income ('NII') and net investment company taxable income ('ICTI'). I am writing this particular article due to the continued high demand that such an analysis be performed. Understanding the tax and dividend payout characteristics of PSEC will provide investors with an overall better understanding of the business development company ('BDC') sector as a whole. Due to the fact PSEC has produced an annual dividend yield between 10% - 13% over the past several years, many investors have chosen this stock (including other stocks within the BDC sector) for income-producing equity investments. From reading this article, investors will better understand how a RIC per the IRC comes up with the company's current dividend rate and specific signs when an impending dividend increase or decrease would be implemented.

Due to the length of the material covered in this article, I feel it is necessary to break PSEC's dividend and NAV sustainability analysis into two parts. I will be performing two dividend sustainability tests within PART 1 of this article. These two tests will focus on PSEC's earnings per share ('EPS') and net investment income ('NII') per share figures. These two tests will be termed "TEST 1" and "TEST 2." At the end of PART 1 of this article, there will be a conclusion based on the results obtained from TEST 1 and TEST 2 about the dividend sustainability of PSEC for several upcoming quarters.

PART 2 of this article will discuss some current and future trends regarding PSEC's dividend and NAV sustainability. These trends will have a direct impact on PSEC's future dividend and NAV sustainability and therefore should also be addressed. The conclusions derived from PART 2 of this analysis will either help solidify or contradict the results obtained in PART 1 regarding PSEC's dividend sustainability. At the end of this article, there will be a conclusion on my personal opinion about the overall dividend and NAV sustainability of PSEC for several upcoming quarters.

Side Note: It should also be noted PSEC's fiscal year-end is June 30th of a given year. Therefore, PSEC's fiscal second quarter ends December 31st of a given year.

Discussion of RIC Classification per the IRC:

In a past PSEC dividend sustainability article, I discussed the company's RIC classification per the IRC. This included specific provisions that PSEC must adhere by to remain in RIC compliance. In summary, PSEC is required to distribute to shareholders at least 90% of the company's "ICTI" and "net capital gains" in any given calendar tax year in order to be eligible for the tax benefits allowed to a RIC (dividends paid deduction at the corporate level).

The following is a link to the past dividend sustainability article where I discussed PSEC's RIC classification per the IRC:

Prospect Capital Corp.'s Dividend Sustainability Analysis (Post Fiscal Q4 2013 Earnings) - Part 1

Understanding Certain Distinctions Between PSEC's Undistributed NII and Undistributed Net ICTI:

To properly understand and accurately predict a BDC's future dividend sustainability, one must understand the subtle distinctions between a company's "undistributed NII" and "undistributed net ICTI." Undistributed NII is a "Generally Accepted Accounting Principles" ('GAAP') figure, which is based on the accrual method of accounting. Undistributed NII is NOT the same as a company's undistributed net ICTI, which is generally based on the cash method of accounting. In order for PSEC to come up with a proper ICTI figure, there are specific GAAP to IRC adjustments (reversals) that need to be performed each quarter. Income and expense recognition of certain accounting transactions differ between GAAP and the IRC (book versus tax accounting treatments).

A majority of PSEC's book to tax differences (either temporary or permanent) consist of the following: 1) deferred financing fees on loans and deferred offering costs in relation to equity raises; 2) amortization (accretion) of loan/investment premiums (discounts); and 3) timing recognition of interest income on certain loans. There are several additional book to tax adjustments that PSEC recognizes. However, for purposes of this article, further discussion of these additional adjustments is unwarranted.

Once PSEC's ICTI is known, one adds any net capital gains to this figure. PSEC had a capital loss carryforward as of 12/31/2013 to offset any net capital gains that might arise in the future. As such, this balance will continue to remain $0 for at least the next several quarters even if PSEC realizes a material amount of short-term net capital gains on the company's debt/equity investments or warrants.

To understand the subtle differences between NII and net ICTI, Tables 1 and 2 are provided below. Table 1 shows PSEC's past undistributed NII while Table 2 shows the company's past undistributed net ICTI.

Table 1 - PSEC Undistributed NII Analysis (Per GAAP)

(click to enlarge)

Table 2 - PSEC Undistributed Net ICTI Analysis (Per IRC)

(click to enlarge)

(Source: Tables created entirely by myself, partially using PSEC data obtained from the SEC's EDGAR Database)

Readers should look at the subtle differences between PSEC's undistributed NII (via Table 1) and undistributed net ICTI (via Table 2) when comparing similar timeframes. As an example, let us look at the differences in NII and net ICTI for the first two fiscal quarters of 2014.

Using Table 1 above as a reference, PSEC had an underpayment (overpayment) of NII of ($4.3) and ($4.4) million for the fiscal first and second quarters of 2014, respectively (see red reference "(C - D) = E"). This translated to a dividend distributions payout ratio of 105% for both the fiscal first and second quarters of 2014 (see red reference "(D / C)"). As such, PSEC's cumulative undistributed NII balance decreased from $77.1 million as of 6/30/2013 to $68.3 million as of 12/31/2013 (see red reference "F"). Again, these figures are based on GAAP methodologies.

In comparison, using Table 2 above as a reference, PSEC had an underpayment (overpayment) of net ICTI of $0.4 and $2.0 million for the fiscal first and second quarters of 2014, respectively (see red reference "(K - D) = L"). This translated to a dividend distributions payout ratio of 100% and 98% for the fiscal first and second quarters of 2014, respectively (see red reference "(D / K)"). As such, PSEC's cumulative undistributed net ICTI balance actually increased from $28.9 million as of 6/30/2013 to $31.3 million as of 12/31/2013 (see red reference "M"). Again, these figures are based on IRC methodologies. Also, one should notice this is the highest cumulative undistributed net ICTI PSEC has been since the company's IPO in 2004 (as partially seen in Table 2 above).

Therefore, PSEC's cumulative undistributed NII (based on GAAP) had slightly decreased during the first and second fiscal quarters of 2014. However, it should be noted PSEC's cumulative undistributed net ICTI (based on the IRC) had slightly increased during the same time frame. Since PSEC's dividend is ultimately based on the company's net ICTI figure, readers should understand the distinction between NII and net ICTI. If not, under certain circumstances one could come to a less accurate conclusion about the sustainability of PSEC's dividend.

Side Note: If one were to look at Table 2's red reference "(D / K)", some fiscal years show PSEC distributed less than the 90% annual distribution requirement per the IRC. For instance, fiscal years 2009 and 2012 show a total net ICTI dividend distributions payout ratio of 85% and 84%, respectively. However, as mentioned in a side note earlier, PSEC's fiscal year-end is June 30th of a given year. For taxation purposes, PSEC's year-end is December 31st of a given year. Tables 1 and 2 show PSEC's fiscal year-end (as opposed to the calendar tax year-end) to highlight the company's net ICTI when compared to its fiscal quarterly dividend distributions to spot patterns and trends within SEC filings. Under any given calendar tax year, PSEC did not fail the required 90% distribution of an entity's annual net ICTI for RIC compliance per the IRC. If Tables 1 and 2 were based on figures representing a calendar tax year (versus a fiscal year), the results would dictate as such. Using Table 2 above as a reference, PSEC's underpayment for the fiscal third and fourth quarters of 2009 were offset by the company's overpayment for the fiscal first and second quarters of 2010. The same scenario occurred when PSEC's overpayment for the fiscal third and fourth quarters of 2011 were offset by the company's underpayment for the fiscal first and second quarters of 2012. To reiterate, Table 2 shows PSEC's net ICTI based on the company's fiscal year-end of June 30th of a given year versus the calendar tax year-end of December 31st of a given year for analysis purposes.

Two Additional Factors PSEC Considers Regarding the Company's Dividend:

In addition to the required 90% distribution of an entity's annual net ICTI for RIC compliance per the IRC (see linked article above for a full discussion of this provision), PSEC's management team has stated (within SEC disclosures) the company's dividend is based on the following two factors:

First Factor: Pay dividends consistent with the company's current and future earnings potential

Second Factor (More Important): Intend to cover the company's dividend payout level with NII

The first factor will focus on PSEC's EPS figures and be analyzed via TEST 1. The second factor will focus on PSEC's NII per share figures and be analyzed via TEST 2. PSEC feels the second factor is more important regarding the company's current and future dividend distribution per share amounts. As such, PSEC's EPS figures (TEST 1) are deemed less important when compared to the company's NII per share figures (TEST 2). Readers should understand this distinction as TEST 1 and TEST 2 are presented and analyzed below.

Side Note: Even though the two tests about to be performed below are based on GAAP methodologies (EPS and NII), readers should understand the dividend is ultimately based on PSEC's net ICTI. Management states these two additional factors are based on GAAP methodologies because EPS and NII are mandatory figures to disclose in quarterly SEC filings while net ICTI is a "non-GAAP" metric, which is not a required disclosure.

Prior to discussing and analyzing PSEC's EPS - basic figures (TEST 1), let us briefly describe the company's past dividend history. This will ultimately help readers better understand TEST 1 and TEST 2.

Brief History of PSEC's Dividend:

In the past, PSEC paid a quarterly dividend from the fiscal second quarter of 2005 to the fiscal third quarter of 2010. During the fiscal fourth quarter of 2010, PSEC switched from paying a quarterly dividend to a monthly dividend. During this conversion period, PSEC only paid a dividend of $0.10 per share for the fiscal fourth quarter of 2010. Prior to this quarter, PSEC paid a dividend of $0.41 per share for the fiscal third quarter of 2010. This was a material dividend cut that some investors may have not noticed due to the quarterly to monthly dividend conversion. Even if the new monthly dividend amount of $0.10 per share was paid each month during the fiscal fourth quarter of 2010 (which did not occur), PSEC still would have reduced the company's quarterly dividend from $0.41 per share to $0.30 per share.

Since the material dividend cut in the fiscal fourth quarter of 2010, PSEC had fractionally increased the company's monthly dividend per share amount until the fiscal second quarter of 2013. PSEC moderately increased the company's monthly dividend from $0.101675 per share in November 2012 to $0.11 per share in December 2012 (instead of just the typical monthly fractional increase). This was mainly attributed to a large increase in PSEC's dividend income from one of the company's portfolio investments (Energy Solutions). These equity distributions occurred during the fiscal fourth quarter of 2012, fiscal first quarter of 2013, and fiscal second quarter of 2013. For these specific fiscal quarters, PSEC recorded a material increase in the company's NII per share and a decent increase in the company's EPS.

When calculated, PSEC paid an annual fiscal dividend of $1.211, $1.217, and $1.279 per share for the fiscal years of 2011, 2012, and 2013, respectively. PSEC has continued to declare a fractionally higher monthly dividend per share amount through the fiscal first quarter of 2015 (through September 2014). When calculated, PSEC will pay an annual dividend of $1.324 per share for the fiscal year of 2014. PSEC's monthly dividend of $0.110525 per share for the month of September 2014 continues the company's fractionally higher dividend policy.

Now that we have briefly discussed the company's past dividends paid and future dividends declared, let us analyze the first additional factor PSEC considers when choosing a proper dividend per share amount.

First Additional Factor - Pay Dividends Consistent With the Company's Current and Future Earnings Potential:

To test management's first additional factor, I feel it is necessary to analyze and discuss PSEC's past quarterly EPS figures to see if the company's quarterly dividends were covered. This will lead to a better understanding of the overall trends regarding this particular component and possible future pitfalls that may arise. Even though not explicitly stated above, I am making the initial assumption management felt PSEC's past quarterly EPS figures were capable of covering the company's past quarterly dividend per share distributions. After a similar analysis is performed on PSEC's past annual NII per share figures (see TEST 2 below), future EPS and NII per share considerations will be discussed in PART 2.

TEST 1 - Cumulative Undistributed EPS Surplus (Deficit) Analysis:

- See Red References "O, P, Q, R, S" in Table 3 Below Next to the December 31, 2013 Column

Using Table 3 below as a reference, the quarterly figures in regards to the red references "O" and "P" are derived from PSEC's quarterly SEC submissions. All remaining figures are checked and tied back to various spreadsheets and data from PSEC's supported documentation where applicable.

Table 3 - PSEC Cumulative Undistributed EPS Surplus (Deficit) Analysis

(click to enlarge)

(Source: Table created entirely by myself, partially using PSEC data obtained from the SEC's EDGAR Database [link provided below Tables 1 and 2])

Using Table 3 above as a reference, I first show PSEC's quarterly "EPS - basic" figure (see red reference "O"). This is PSEC's quarterly EPS - basic figure per GAAP and is shown within the company's income statement. I then show PSEC's quarterly dividend distributions figure (see red reference "P"). I then subtract PSEC's quarterly EPS - basic figure from the company's quarterly dividend distributions figure. If PSEC's red reference "O" is greater than the company's red reference "P," then PSEC technically had enough quarterly EPS to pay out the company's quarterly dividend distributions. If PSEC's red reference "O" is less than the company's red reference "P," then PSEC had overpaid the company's quarterly dividend distributions in regards to EPS.

Regarding TEST 1, I analyze three balances. The first balance (see red reference "(O - P) = Q") is PSEC's EPS - basic underpayment (overpayment) for each fiscal quarter. This particular balance is non-cumulative in nature. The second balance (see red reference "R") is PSEC's EPS - basic cumulative running underpayment (overpayment) since the company's last material dividend increase in the fiscal second quarter of 2013. The third balance (see red reference "S") is PSEC's EPS - basic cumulative running underpayment (overpayment) since the company's initial public offering ('IPO') in 2004.

PSEC had a quarterly EPS - basic underpayment (overpayment) of ($0.014), ($0.076), ($0.134), and $0.008 per share for the company's fiscal first, second, third, and fourth quarters of 2013, respectively. When combined, this calculated to an annual underpayment (overpayment) of ($0.216) per share for the fiscal year of 2013. This annual overpayment was mainly attributed to a net realized gain (loss) of ($26.2) million on PSEC's sold/exited investments and the net unrealized appreciation (depreciation) of ($77.8) million regarding the company's active investments at the time. When calculated, PSEC's cumulative running balance went from an EPS - basic underpayment (overpayment) of ($0.211) per share at the end of the fiscal year of 2012 to a sizable EPS - basic underpayment (overpayment) of ($0.427) per share by the end of the fiscal year of 2013. When looking at TEST 1's analysis on a standalone basis, a strong argument could be made that the dividend increase during the fiscal year of 2013 caused an increase to this particular deficit.

For the fiscal first and second quarters of 2014, PSEC reported quarterly EPS - basic of $0.31 and $0.297 per share while distributing dividends of ($0.331) and ($0.331) per share, respectively. When calculated, this was a quarterly EPS - basic underpayment (overpayment) of ($0.021) and ($0.033) per share, respectively. As such, by the end of the second fiscal quarter of 2014, PSEC's cumulative running underpayment (overpayment), regarding the company's EPS - basic figure since the last material dividend increase, had risen to ($0.256) per share. PSEC's cumulative running underpayment (overpayment), regarding the company's EPS - basic figure since its IPO, had risen to ($0.460) per share. This cumulative running balance continued to be a material overpayment at the end of the fiscal second quarter of 2014. However, when compared to PSEC's BDC peers that I research, the EPS - basic cumulative running underpayment (overpayment) of ($0.460) per share was still towards the lower end of the range.

Therefore, it seems PSEC's cumulative running EPS - basic overpayment at the end of the fiscal second quarter of 2014 showed some signs the future dividend could be vulnerable if this were the only factor the company looked at. As stated in an earlier side note, even though PSEC considers EPS as a factor when considering the company's dividend declarations, management has stated NII is a more important factor. As such, I make the assumption that TEST 1's results should be considered less important when compared to TEST 2's results.

Now let us analyze and discuss the second (more important) additional factor PSEC considers when choosing a proper dividend per share amount.

Second Additional Factor - Intend to Cover the Company's Dividend Payout Level with NII:

To test management's second additional factor, I feel it is necessary to analyze and discuss PSEC's past quarterly NII per share figures to see if the company's quarterly dividends were covered. This will lead to a better understanding of the overall trends regarding this particular component and possible future pitfalls that may arise. Even though not explicitly stated above, I am making the initial assumption management felt PSEC's past quarterly NII per share figures were capable of covering the company's past quarterly dividend per share distributions. After TEST 2 is analyzed and discussed, future EPS and NII per share considerations will be discussed in PART 2.

TEST 2 - Cumulative Undistributed NII Per Share Surplus (Deficit) Analysis:

- See Red References "P, T, U, V, W" in Table 4 Below Next to the December 31, 2013 Column

Using Table 4 below as a reference, the quarterly figures in regards to the red references "T" and "P" are derived from PSEC's quarterly SEC submissions. All remaining figures are checked and tied back to various spreadsheets and data from PSEC's supported documentation where applicable.

Table 4 - PSEC Cumulative Undistributed NII Per Share Surplus (Deficit) Analysis

(click to enlarge)

(Source: Table created entirely by myself, partially using PSEC data obtained from the SEC's EDGAR Database [link provided below Tables 1 and 2])

Using Table 4 above as a reference, I first show PSEC's quarterly "NII per share - basic" figure (see red reference "T"). This is PSEC's quarterly NII per share - basic figure per GAAP and is shown within the company's income statement. I then show PSEC's quarterly dividend distributions figure (see red reference "P"). I then subtract PSEC's quarterly NII per share - basic figure from the company's quarterly dividend distributions figure. If PSEC's red reference "T" is greater than the company's red reference "P," then PSEC technically had enough quarterly NII per share to pay out the company's quarterly dividend distributions. If PSEC's red reference "T" is less than the company's red reference "P," then PSEC had overpaid the company's quarterly dividend distributions in regards to NII per share.

Regarding TEST 2, I analyze three balances. The first balance (see red reference "(T - P) = U") is PSEC's NII per share - basic underpayment (overpayment) for each fiscal quarter. This particular balance is non-cumulative in nature. The second balance (see red reference "V") is PSEC's NII per share - basic cumulative running underpayment (overpayment) since the company's last material dividend increase in the fiscal second quarter of 2013. The third balance (red reference "W") is PSEC's NII per share - basic cumulative running underpayment (overpayment) since the company's IPO in 2004.

PSEC had a quarterly NII per share - basic underpayment (overpayment) of $0.151, $0.194, ($0.067), and $0.046 per share for the company's fiscal first, second, third, and fourth quarters of 2013, respectively. When combined, this calculated to an annual underpayment (overpayment) of $0.324 per share for the fiscal year of 2013. This annual underpayment was mainly attributed to material increases in PSEC's interest, dividend, and other income as the company's investment portfolio rapidly expanded and capital was fully deployed. This also included a lower portion of PSEC's investment portfolio being put on "non-accrual" status. PSEC's annual "total investment income" outpaced the modest increases in the company's annual "total investment advisory fees" and "total operating expenses" for the fiscal year of 2013. When calculated, PSEC's cumulative running balance went from a NII per share - basic underpayment (overpayment) of $0.67 per share at the end of the fiscal year of 2012 to a sizable NII per share - basic underpayment (overpayment) of $0.994 per share by the end of the fiscal year of 2013. This was an extremely positive sign. When looking at TEST 2's analysis on a standalone basis, a very strong argument could be made that the dividend increase during the fiscal year of 2013 could have been even higher.

For the fiscal first and second quarters of 2014, PSEC reported quarterly NII per share - basic of $0.319 and $0.321 per share while distributing dividends of ($0.331) and ($0.331) per share, respectively. When calculated, this was a quarterly NII per share - basic underpayment (overpayment) of ($0.012) and ($0.010) per share, respectively. As such, by the end of the second fiscal quarter of 2014, PSEC's cumulative running underpayment (overpayment), regarding the company's NII per share - basic figure since the last material dividend increase, had been slightly reduced to $0.152 per share. PSEC's cumulative running underpayment (overpayment), regarding the company's NII per share - basic figure since its IPO, had been slightly reduced to $0.973 per share. This cumulative running balance continued to be a material underpayment at the end of the fiscal second quarter of 2014. When compared to PSEC's BDC peers that I research, the NII per share - basic cumulative running underpayment (overpayment) of $0.973 per share continued to be near the top of the range (even with the slight reduction to this balance for the fiscal first and second quarters of 2014).

Therefore, it seems PSEC's cumulative running NII per share - basic underpayment at the end of the fiscal second quarter of 2014 still showed little signs the future dividend will be cut over the next several fiscal quarters. Actually, TEST 2 showed there still is strong evidence fractionally higher dividend increases will continue to occur. This determination has already been partially validated as PSEC recently declared fractionally higher monthly dividend distributions through the fiscal first quarter of 2015 (September 2014). This leads me to conclude that PSEC's second factor is currently passing under the annual dividend rate of $1.324 per share (or a monthly dividend of approximately $0.11 per share). As such, TEST 2 concludes a dividend cut is a fairly low probability through at least the fiscal first-half of 2015 (through December 2014). TEST 2's results also show TEST 1's results should be less alarming regarding possible vulnerabilities of PSEC's future dividend sustainability.

Conclusions Drawn - PART 1:

To reiterate what was performed in PART 1 of this article, I first highlighted the subtle differences between PSEC's undistributed NII and undistributed net ICTI. Even though the two tests performed above are based on GAAP methodologies (EPS and NII), readers should understand the dividend is ultimately based on PSEC's net ICTI. Management states these two additional factors are based on GAAP methodologies because EPS and NII are mandatory figures to disclose in quarterly SEC filings while net ICTI is a "non-GAAP" metric, which is not a required disclosure. While NII is a good metric to base PSEC's future dividend sustainability on, the company's net ICTI is the best metric. After this distinction was discussed, two dividend sustainability tests were performed on PSEC. The first test focused on PSEC's EPS - basic figures while the second test focused on PSEC's NII per share - basic figures.

TEST 1 took PSEC's quarterly EPS - basic figure and compared it to the company's quarterly dividend distributions per share figure. PSEC's cumulative running underpayment (overpayment), regarding the company's EPS - basic figure since the last material dividend increase, had risen to ($0.256) per share. PSEC's cumulative running underpayment (overpayment), regarding the company's EPS - basic figure since its IPO, had risen to ($0.460) per share. Therefore, TEST 1 seemed to point out PSEC's cumulative running EPS - basic overpayment at the end of the fiscal second quarter of 2014 showed some signs the future dividend could be vulnerable if this were the only factor the company looked at. Even though PSEC considers EPS as a factor when considering the company's dividend declarations, management has stated NII is a more important factor. As such, I make the assumption that TEST 1's results should be considered less important when compared to TEST 2's results.

TEST 2 took PSEC's quarterly NII per share - basic figure and compared it to the company's quarterly dividend distributions per share figure. PSEC's cumulative running underpayment (overpayment), regarding the company's NII per share - basic figure since the last material dividend increase, had been slightly reduced to $0.152 per share. PSEC's cumulative running underpayment (overpayment), regarding the company's NII per share - basic figure since its IPO, had been slightly reduced to $0.973 per share. However, both balances still had a material surplus. Therefore, TEST 2 seemed to point out PSEC's cumulative running NII per share - basic underpayment at the end of the fiscal second quarter of 2014 still showed little signs the future dividend will be cut over the next several fiscal quarters. Actually, TEST 2 showed there still is strong evidence fractionally higher dividend increases will continue to occur. This determination has already been partially validated as PSEC recently declared fractionally higher monthly dividend distributions through the fiscal first quarter of 2015 (September 2014). This leads me to conclude that PSEC's second factor is currently passing under the annual dividend rate of $1.324 per share (or a monthly dividend of approximately $0.11 per share). As such, TEST 2 concluded a dividend cut is a fairly low probability through at least the fiscal first-half of 2015 (through December 2014). TEST 2's results also show TEST 1's results should be less alarming regarding possible vulnerabilities of PSEC's future dividend sustainability.

Final Note: Based on the mixed results shown in TEST 1 and TEST 2 above, I feel it is only prudent to include additional analysis regarding PSEC's dividend sustainability. As such, PART 1 of this article is only a PARTIAL analysis of PSEC's dividend sustainability. Therefore, a "full" conclusion regarding PSEC's dividend and NAV sustainability will not be provided yet. PART 2 of this article will just pick up where PART 1's analysis ends. Since PART 1 of this article mainly covered PSEC's past performance, PART 2 will discuss the company's future EPS and NII per share. PSEC's future EPS and NII per share will be discussed in PART 2 to see if the conclusions within PART 1 remain accurate and valid. PART 2 will also include a discussion of PSEC's NAV sustainability. PART 2 of this article will be available to readers in the near future.

Source: Prospect Capital's Dividend And Net Asset Value Sustainability Analysis (Post Fiscal Q2 2014 Earnings) - Part 1