Seeking Alpha

Prospect selling knee-jerk, or something more?

  • High risk or high opportunity? That the market now views Prospect Capital (PSEC +0.6%) as high-risk can be inferred from the dividend yield, says KBW's Greg Kelly - a whopping 13.3% compared to, for instance, the more-conservatively run Golub Capital (GBDC +0.6%) which yields just 7.5%.
  • While most BDCs are lenders, Prospect buys companies outright - the only of the 30 BDCs covered by Kelly which does this (though SLRC has done so with one).
  • As has been noted before by other analysts and Prospect management itself, if the SEC prevails in the accounting dispute, it will actually boost money going to shareholders while cutting management compensation. Another positive: Equity raises are off the table until the issue is resolved.
  • Prospect management paints the selling in the stock as "sell first, ask questions later," but The Street's Dan Freed muses that maybe owners are thinking twice about investing in a management which plays accounting games to line its pockets at the expense of earnings.
  • In other news, Evercore upgrades Prospect from Underweight to Equal Weight.
Comments (87)
  • jamesfletcher2
    , contributor
    Comments (7) | Send Message
     
    The sell-off yesterday in PSEC is because one or two ambulance-chasing law firms filed suit against PSEC to try and extort money from them based on the upcoming SEC finding. The fundamentals of the firm are as solid as they ever were.
    29 May, 10:57 AM Reply Like
  • smurf
    , contributor
    Comments (3777) | Send Message
     
    jamesfletcher2,

     

    <<...because one or two ambulance-chasing law firms filed suit against PSEC...>>

     

    I own PSEC and follow every bit of news on it I see. I have noticed nothing about lawsuits from trial law firms. What I DO know is that there is an SEC inquiry, and that's never good news. They don't investigate companies on whims.

     

    Better double check whatever news source you read about lawsuits.
    30 May, 04:17 PM Reply Like
  • Dividends#1
    , contributor
    Comments (2211) | Send Message
     
    Hi smurf,

     

    I AM LONG PSEC !!!!!!!!!!!!!!!

     

    It appears their are actually 2 separate lawsuits. Seems like the market is not impressed.

     

    ALSO, the SEC is NOT INVESTIGATING PSEC, they asked them to RESTATE their financials. BIG DIFFERENCE!!!

     

    Prospect Capital (PSEC) Weakness Viewed as Buying Opportunity - National Securities
    11:47 AM ET, 05/08/2014 - Street Insider
    National Securities maintained a Buy rating on Prospect Capital Corporation (NASDAQ: http://bit.ly/Ne44cC) price target of $13.00. Analyst Andrew Kerai thinks SEC issues my ultimately be positive for shareholder, and he thinks related weakness is a buying opportunity.
    "Prospect was informed by the SEC that some of its wholly-owned portfolio companies should be considered investment companies and consolidated. Should this occur, the company may be required to restate historical earnings and consolidate these entities for accounting purposes going forward. At first glance, this appears negative, and resulted in the stock trading significantly lower by roughly 5% yesterday. However, given that this could result in lower interest income recognized under GAAP accounting, while cash income from these investments would remain unchanged, we believe this could positively impact the company s net asset value and taxable earnings," said Kerai.
    "Given that incentive fees are based on the company s GAAP preincentive fee net investment income, which would likely be lower should the company consolidate some of these entities, a possible restatement could result in higher historical taxable earnings (given lower incentive fees) and a higher net asset value. Furthermore, this may increase the amount of spillover income to support the current dividend based on undistributed taxable earnings. In essence, while we believe the SEC s assertion was viewed negatively by many investors, which explains the significant decline in the stock price, we believe this should be viewed positively given that it could result in lower incentive fees and higher distributable income for shareholders," he added.

     

    LAWSUITS BELOW!!!!!!!!!!!!!!!!!...

     

    #1)

     

    PROSPECT CAPITAL SHAREHOLDER ALERT BY FORMER LOUISIANA ATTORNEY GENERAL: Kahn Swick & Foti, LLC Reminds Investors with Losses in Excess of $100,000 of Lead Plaintiff Deadline in Class Action Lawsuit Against Prospect Capital Corporation - PSEC
    10:00 PM ET, 05/29/2014 - GlobeNewswire

     

    NEW ORLEANS, May 29, 2014 (GLOBE NEWSWIRE) -- Kahn Swick & Foti, LLC ("KSF") and KSF partner, the former Attorney General of Louisiana, Charles C. Foti, Jr., remind investors that they have untilJuly 28, 2014 to file lead plaintiff applications in a securities class action lawsuit against Prospect Capital Corporation (Nasdaq:http://bit.ly/Ne44cC), if they purchased the Company's securities during the period between August 21, 2013 and May 6, 2014, inclusive (the "Class Period"). This action is pending in the United States District Court for the Southern District of New York.

     

    What You May Do

     

    If you purchased shares of Prospect Capital and would like to discuss your legal rights and how this case might affect you and your right to recover for your economic loss, you may, without obligation or cost to you, call toll-free at 1-877-515-1850, or email KSF Managing Partner Lewis Kahn (lewis.kahn@ksfcounsel... or KSF Partner Melinda Nicholson (melinda.nicholson@ksf... If you wish to serve as a lead plaintiff in this class action, you must petition the Court by July 28, 2014.

     

    About the Lawsuit

     

    Prospect Capital and certain of its executives are charged with issuing a series of materially false and misleading statements during the Class Period, violating federal securities laws.

     

    On May 6, 2014, Prospect Capital disclosed that the SEC informed the Company that its wholly owned companies were investment companies and for accounting purposes needed to be consolidated. The Company also disclosed that may have to restate prior financial statements to resolve the consolidation issue, which could potentially decrease its historical net investment income.

     

    On this news, the price of Prospect Capital's shares fell by over 5%.

     

    About Kahn Swick & Foti, LLC

     

    To learn more about KSF, whose partners include the Former Louisiana Attorney General, Charles C. Foti, Jr., and other lawyers with significant experience litigating complex securities class actions nationwide on behalf of both institutional and individual shareholders, you may visit http://bit.ly/RMs8Gn.
    CONTACT: Kahn Swick & Foti, LLCLewis Kahn, Managing Partner
    lewis.kahn@ksfcounsel.... Nicholson, Partner
    melinda.nicholson@ksfc...
    1-877-515-1850
    206 Covington St.Madisonville, LA 70447 Source: Kahn Swick & Foti, LLC

     

    LAWSUIT #2) on 5/29/2014

     

    SHAREHOLDER ALERT: Pomerantz Law Firm Announces the Filing of a Class Action Against Prospect Capital Corporation and Certain Officers -- PSEC
    6:00 PM ET, 05/29/2014 - GlobeNewswire

     

    NEW YORK, May 29, 2014 (GLOBE NEWSWIRE) -- Pomerantz LLP has filed a class action lawsuit against Prospect Capital Corporation ("Prospect Capital" or the "Company") (Nasdaq:http://bit.ly/Ne44cC) and certain of its officers. The class action, filed in United States District Court, Southern District of New York, and docketed under 14-cv-3847 is on behalf of a class consisting of all persons or entities who purchased or otherwise acquired Prospect Capital securities between August 23, 2013 and May 6, 2014, both dates inclusive (the "Class Period"). This class action seeks to recover damages against Defendants for alleged violations of the federal securities laws pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.

     

    If you are a shareholder who purchased Prospect Capital securities during the Class Period, you have until July 28, 2014 to ask the Court to appoint you as Lead Plaintiff for the class. A copy of the Complaint can be obtained at http://bit.ly/18xUmIq. To discuss this action, contact Robert S. Willoughby at rswilloughby@pomlaw.com or 888.476.6529 (or 888.4-POMLAW), toll free, x237. Those who inquire by e-mail are encouraged to include their mailing address, telephone number, and number of shares purchased.

     

    Prospect Capital is a financial services company that primarily lends to and invests in middle market privately-held companies. The Company is a closed-end investment company that has filed an election to be treated as a business development company under the Investment Company Act of 1940 ("the 1940 Act"). The Company invests primarily in senior and subordinated debt and equity of companies in need of capital for acquisitions, divestitures, growth, development and recapitalization.

     

    The Complaint alleges that throughout the Class Period, Defendants made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company's business, operations, and prospects. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (1) certain of Prospect Capital's wholly owned companies were investment companies for accounting purposes that were required to be consolidated by the Company; (2) as such, certain of Prospect Capital's wholly owned holding companies should have been accounted for as investment companies; (3) as a result, the Company's reported investment income and financial results were misstated; (4) as such, the Company's financial statements were not prepared in accordance with Generally Accepted Accounting Principles ("GAAP"); (5) that the Company lacked adequate internal and financial controls; and (6) that, as a result of the foregoing, the Company's financial statements were materially false and misleading at all relevant times.

     

    On May 6, 2014, after the market close, the Company filed its Form 10-Q with the SEC and announced that the SEC's staff had asserted that some of the Company's wholly owned companies are investment companies for accounting purposes and must be consolidated. The Company announced that the Company may have to restate its prior financial statements to resolve the issue. One potential effect of a restatement would be to decrease the Company's historical net investment income by the amount of interest and structuring income paid by such wholly-owned companies in excess of the amount of income that can be reported as dividend income based on taxable earnings and profits.

     

    On this news, shares of Prospect Capital declined $0.54 per share, over 5%, to close on May 7, 2014, at $10.20 per share, on unusually heavy volume.

     

    The Pomerantz Firm, with offices in New York, Chicago, Florida, and San Diego, is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, the Pomerantz Firm pioneered the field of securities class actions. Today, more than 70 years later, the Pomerantz Firm continues in the tradition he established, fighting for the rights of the victims of securities fraud, breaches of fiduciary duty, and corporate misconduct. The Firm has recovered numerous multimillion-dollar damages awards on behalf of class members. See http://bit.ly/18xUmIq.
    CONTACT: Robert S. WilloughbyPomerantz LLPrswilloughby@pomlaw... Source: Pomerantz LLP

     

    At the same time here is an UPGRADE!!!!!!!!!!!!!!!!! See UPGRADE below!!

     

    Evercore Partners Upgrades Prospect Capital Corporation (http://bit.ly/Ne44cC) to Equal Weight
    7:06 AM ET, 05/29/2014 - Street Insider

     

    Evercore Partners upgraded Prospect Capital Corporation (NASDAQ: http://bit.ly/Ne44cC) from Underweight to Equal Weight with a price target of $10.00. For an analyst ratings summary and ratings history on Prospect Capital Corporation click here. For more ratings news on Prospect Capital Corporation click here. Shares of Prospect Capital Corporation closed at $9.97 yesterday.
    30 May, 06:17 PM Reply Like
  • randyrado
    , contributor
    Comments (4) | Send Message
     
    There have been at least 3, perhaps 4, class actions filed within the past few days. All without merit in my opinion, and I believe the SEC inquiry has more to do with genuine GAAP matters than anything nefarious going on. The knee jerk sell of today presented an excellent buying opportunity we took advantage of with heavy buying shortly after the lows this morning.
    3 Jun, 11:08 PM Reply Like
  • Pinkrabbit
    , contributor
    Comments (185) | Send Message
     
    Let mgt line their pockets as long as they are paying 13.3% to the shareholders. God bless em.
    29 May, 11:01 AM Reply Like
  • critterlitter
    , contributor
    Comments (367) | Send Message
     
    Pinkrabbit --- You've got that right. There's a myriad of ways to compensate a management team and they are ALL "at the cost" to the shareholder. In other words, it's a cost of doing business.

     

    I would think that the negative-thinkers and the short-sellers want to spin this into anything that they can so as to provide consternation and distrust, and ultimately cash in on this event, but the bottom line is that it doesn't amount to much when all is said and done.

     

    I don't refute the SEC rule and standing. I obviously cannot explain why Prospect chose to take this route as a means of "management compensation" when there's all kinds of alternate ways to do it. There's no fly on the wall that has come forward to explain Prospect's rationale except that there are transaction/management fees that take place that benefit Prospect/management.

     

    Whatever the case, nothing has changed with the health of the business and their business model. I am sure that they WILL change this practice --- I don't think they have a choice but to call themselves a controlling interest in any business that they are vested more than 50%. That's the rule, so they had better abide. Who knows what they feel they can accomplish by "appealing" this SEC finding and subsequent discussions. The only thing we've seen so far is a hit to the share price, most likely caused by this questioned behavior and practice.

     

    My personal confidence in Prospect has not wavered, in fact, I added to my position when this initially came out of the bag and the stock took the hit. Some sold, some added, some bought in as new holders. It certainly was not a mass exodus to the exits.

     

    I'm quite long PSEC and plan on staying that way for years to come. They have a good management team and perform quite well in the world of BDCs. They also have one of the largest portfolios and also are one of the biggest deal-makers, which certainly positions themselves quite well.

     

    I don't lose any sleep at night and the monthly drip is frosting on the cake to the distribution. I can think of a ton of places where I don't wish to place my money and that's why I'm here. There's risk in every stock but the risk/reward for owning Prospect makes it a buy and hold for me...

     

    Peace.
    29 May, 01:40 PM Reply Like
  • Purple_K
    , contributor
    Comments (387) | Send Message
     
    "Let mgt line their pockets as long as they are paying 13.3% to the shareholders. God bless em."

     

    -as said by every dividend yield chasing sucker in the market

     

    Will God bless 'em if something more emerges, and suddenly that yield is 26.5% when the stock halts and reopens at 5?

     

    To whit: http://bit.ly/1mwlJc5 (check the 5-year)

     

    It's nothing against PSEC particularly, but when I find I'm sharing company with people who have reckless thoughts like this, caring only about yield and Damn the Torpedos - I'm wondering if it isn't time to look for the exit

     

    Full disclosure - Long $PSEC, haven't added a share since this began, DID sell some 10 puts for June.
    29 May, 04:38 PM Reply Like
  • Dividends#1
    , contributor
    Comments (2211) | Send Message
     
    Purple,

     

    You can't say the market sentiment is reckless regarding PSEC, as evidenced by the majority of transactions occurring at the $10 level as opposed to the $11 ( ball park price averages over the last month or so) level. More market participants are willing to run for the exits and dump shares at a nice discount to the current BV.

     

    No offense to the SA member who are positive ( I am one of them) but we are the little guy, the big boys sold first and are asking questions later.

     

    So, my bottom line is to be a contraian and buy good companies when the majority sentiment is negative ( short term price changes controlled by a voting machine) and wait for the long term reversion to the mean and higher prices based on fundamentals and earnings.

     

    This is not to say the little guy is smarter then the bug boys, I am not that foolish. What I mean is I believe the minority little guys who are posting here could be right about owning PSEC at these levels, the majority of ALL market participants are obviously bearish regarding PSEC, however that is a short term occurrence in my opinion and the big boys will run the price back up over the next 6-12 months. Just my view point.

     

    I was right about AGNC last year as I bought all the way down to the bottom. Sold 17% of my position in AGNC at a profit and bought PSEC with the proceeds. Now I have a 50% portfolio allocation in AGNC, 27% MO, 12% PSEC, KMR is 8% and MTGE is 3%.

     

    I had to sell some AGNC as my allocation was getting way too high, even for me. I am comfortable with 50% in AGNC at this point in time.
    29 May, 05:15 PM Reply Like
  • Purple_K
    , contributor
    Comments (387) | Send Message
     
    "You can't say the market sentiment is reckless "

     

    -I'm not. I'm saying when people say things like the guy I quoted, disregarding caution because they're blinded by what is clearly an outsize, potential warning sign level yield, that tells me that I should at least *start* worrying.

     

    I may be wrong - I always publicly state my buys and sells, and in PSEC's case i bought a bunch at 10.55 and then sold that same day, because the price action was frightening. This was before the gap down. i still hold my core and though underwater, assuming there is no explosion, the dividends will right the ship.

     

    My larger point was that that particular sort of thinking is reckless, and I am hearing more and more of it these days about $PSEC, almost as if people are whistling past the graveyard, if you get my convoluted analogy.

     

    Otherwise I agree with you 100%
    29 May, 06:35 PM Reply Like
  • xxavatarxx
    , contributor
    Comments (2054) | Send Message
     
    Purple_K, PSEC has been fine for many years now.
    Two things drove down PSECs price (maybe 3).
    1) S&P dropped PSEC and a few other BDC's
    2) Russell Indexes are going to drop PSEC
    3) SEC issue

     

    None of those things have much of anything to do with PSEC's yield unless you can correlate the accounting issue the SEC wants them to change has been jacking up their yield significantly.

     

    They just got hit with some circumstances out of their control.
    Maybe one in their control (the SEC issue).
    29 May, 06:43 PM Reply Like
  • ConArtist
    , contributor
    Comments (45) | Send Message
     
    couldn't have said it better myself.
    29 May, 07:24 PM Reply Like
  • ConArtist
    , contributor
    Comments (45) | Send Message
     
    how does your example relate to psec? It has fairly predictable earnings. The NAV is respectable. For those who bought at 11+ I can feel their pain, but for new investors I don't think there's reason for panic.
    29 May, 07:28 PM Reply Like
  • Purple_K
    , contributor
    Comments (387) | Send Message
     
    My example? My example refers to people buying yield without regard to what's going on upstairs, which if you read my post and looked at the link you'd already know. The poster I quoted doesn't seem to care about anything but that, and that's not smart investing.
    29 May, 07:43 PM Reply Like
  • xxavatarxx
    , contributor
    Comments (2054) | Send Message
     
    "but for new investors I don't think there's reason for panic"

     

    At this point it's probably not a bad time to buy.
    I don't see if falling to much more until then unless something really bad happens with the SEC issue.

     

    Or sit tight until June 27th when the Russell Index sell.
    29 May, 07:44 PM Reply Like
  • Purple_K
    , contributor
    Comments (387) | Send Message
     
    "Many years now" can become "where did all my capital go?" rather swiftly, which is why I included the $AT chart - it had been a rock solid monthly payer for years.... until it wasn't.

     

    I'm going to assume this is meant tongue-in-cheek:
    "They just got hit with some circumstances out of their control.
    Maybe one in their control (the SEC issue)."

     

    Because, um, yeah, that's pretty much the easiest one to avoid, and the one that will kill your company.

     

    I own PSEC for over a year now. Your three reasons it went down are quite well known to me. 1 & 2 were well baked in this cake before the SEC shenanagins started. But you seem to be missing my point, which is (again) that when people are saying ""Let mgt line their pockets as long as they are paying 13.3% to the shareholders. God bless em." that shows a clear disregard for investing prudence, and I daresay, common sense.

     

    Feel free to stand on record defending such idiocy. A guy saying "I don't care if management is playing accounting games that could potentially bring down the company as long as I get my .11/month" is begging to join future class action suits. I don't know what is really going on here, and until I do, I'm not adding to my position. Nor am I selling. But if you (by you I mean anyone) don't know that 13.3% is an insane amount of yield, high even for BDC's, and you don't know or care how reward is commensurate with risk, then individual stocks aren't for you.
    29 May, 07:53 PM Reply Like
  • xxavatarxx
    , contributor
    Comments (2054) | Send Message
     
    Yeah I agree, they are definitely living off the lamb.
    So are a few other BDC's. It's not just PSEC.
    Aside from general protest though, there isn't a whole lot I can do about it.
    29 May, 08:18 PM Reply Like
  • Husker Bob
    , contributor
    Comments (272) | Send Message
     
    Purple - based on all of your comments, why did you buy the stock in the first place. The high yield is nothing new, just a bit higher now because the stock has been beat down a bit. Yet you talk like the high yield alone is quite suspect and a reason to be leery. By the way, they are a BDC and required to distribute their earnings. Would you be happier if they had less earnings to distribute?

     

    The "SEC shenanigans" are not new, nor are they shenanigans. They have been structured as they are for quite some time. It is just that the SEC has stated they want them to change and that puts things up in the air.

     

    Again, you talk like there is something new going on when really there is not. They may have to re-structure due to SEC rulings, but that does not mean they have been up to "shenanigans". If you think differently then please elaborate on what exactly these shenanigans are.

     

    I suggest that if you are so uncomfortable you sell your position and be done with it.

     

    Long PSEC (since early 2011) and appreciative of the high yield.
    29 May, 10:20 PM Reply Like
  • Urbannek
    , contributor
    Comments (555) | Send Message
     
    I do not think AT is a comparable company. They are in a completely different business. Also from what I have read their management team is not very experienced in managing an independent utlity. I think the PSEC management team is very experienced in managing a BDC and even has experience managing through the great recession of 2008.
    Note: I am long both PSEC and AT.
    30 May, 01:10 AM Reply Like
  • Urbannek
    , contributor
    Comments (555) | Send Message
     
    I think a lof of the big boys sold because BDCs were removed from the Russell and they had to sell PSEC because it will no longer be allowed in their funds based upon the Russell index.
    30 May, 01:12 AM Reply Like
  • Dividends#1
    , contributor
    Comments (2211) | Send Message
     
    purple,

     

    I understand your concern. A high yield does seem to good to be true. Most high yielders do not survive for long periods of time.

     

    That being said, their are always exceptions.

     

    PSEC does have a decent? track record for almost 10 years. What I mean by decent is an average annual total return of 6.3% since 7/2004. Now 6.3% is NOT very good compared to the S&P 500 over the last 10 years. Many solid dividend companies have crushed PSEC's total return in this time frame as you know.

     

    So, the capital losses are a real thing. I do not know the average historical yield for PSEC, but if it is 11.3% ( just a guess for an example) then the stock price has a - 5% annual return = + 6.3%/ year return.

     

    All in all, PSEC has given investors a nice monthly dividend. No one gets rich owning PSEC. Some might think about it like an annuity.

     

    I like the fact of buying it at this level of $10. The yield + a move up in the price from this depressed level = a better then average total return of the past in my opinion.

     

    I trust Scott Kennedy's analysis and he owns PSEC. That gives me confidence in the accounting. We shall see.

     

    I am an income investor and PSEC has increased my income. I really like the monthly dividends. I actually expect a 20%+ total return over the next 12 months. Dividend + price appreciation from $10.

     

    Don't you think the selling has been over done?

     

    If I am wrong and PSEC drops to $9 with out a valid reason, I would increase my position.

     

    Good luck to you.
    30 May, 07:30 AM Reply Like
  • ConArtist
    , contributor
    Comments (45) | Send Message
     
    Very much agree!
    30 May, 02:09 PM Reply Like
  • tnale
    , contributor
    Comments (8) | Send Message
     
    http://bit.ly/1sNsD0W

     

    If you go to the above URL, you can click on the Shareholders Tools and put in your cost basis and the date you purchased PSEC stock and it will tell you your total return.
    30 May, 02:17 PM Reply Like
  • Purple_K
    , contributor
    Comments (387) | Send Message
     
    "Don't you think the selling has been over done?"

     

    That I do - assuming there *isn't* a larger issue here. I sold a bunch of 10 puts for Jun which would give me a CB around 9.75, should I get put them.

     

    Here's something to chew on - if there isn't anything to be concerned about, shouldn't the stock have recovered a bit closer to 10.50 or so? (Which is where the real decline began, IMO) That allows for some of the selloff from weak hands, but not the constant grind I saw the day I tripled down then sold off the new shares. That kind of action is a concern, and I am sure glad for the moment I did what I did.

     

    Overall, I like PSEC, what they do, and their dividend history. Im not commenting here because I dont like the company - but there is a lack of concern for a situation that warrants some.
    30 May, 06:39 PM Reply Like
  • Purple_K
    , contributor
    Comments (387) | Send Message
     
    "I do not think AT is a comparable company. They are in a completely different business."

     

    Try reading the post. I am not comparing apples to apples. Not only did I not say they were, I went out of my way to say they were NOT. I am pointing out that what seems to be a steady dividend payer sometimes is anything but, and buying only yield is a fool's errand.
    30 May, 06:57 PM Reply Like
  • randyrado
    , contributor
    Comments (4) | Send Message
     
    Ditto.
    3 Jun, 11:44 PM Reply Like
  • randyrado
    , contributor
    Comments (4) | Send Message
     
    I think you missed that poster's point about the yield and management's pockets.
    3 Jun, 11:44 PM Reply Like
  • Robert Whelan
    , contributor
    Comments (35) | Send Message
     
    I think its because yesterday was ex-div date?
    29 May, 11:01 AM Reply Like
  • critterlitter
    , contributor
    Comments (367) | Send Message
     
    Yes, the ex-div date has everything to do with it and the drop is in line with what would be expected. Over-and-above (or below) the actual pending payout per share would be considered everyday market activity or market "sentiment" if it was quite sizeable.

     

    It's up a nickel right now (5/29 1:45 est) which, at the least, covers any market sentiment and certainly, for one day, is a healthy move toward heading back up in "preparation" for the next monthly ex-div date...
    29 May, 01:47 PM Reply Like
  • 13302632
    , contributor
    Comments (226) | Send Message
     
    In comparing a 13% yield against a 7% yield, I can understand the idea of high risk if the 13% yield is a total mirage. But if it based on a real say 10% yield and a 3% draw down of capital why would you consider that high risk. It's not like a bond that could go completely bad and default. If the worst that can happen is to cut dividend from 13% to 10%, it seems the stock is undervalued. I think if you buy prospect and reinvest dividends you will do quite nicely. I know I have for years. I felt very fortunate to buy some at $9.40 recently. It is still a bargain at in the vicinity of $10 I believe. When it gets past this restatement and the sell off from BDC removal from indices, it could start to gravitate back to $11 while collecting 1%+ a month.
    29 May, 11:01 AM Reply Like
  • James_B
    , contributor
    Comments (111) | Send Message
     
    I was going to wait until the BDCs were removed from the indices to buy. I'm hoping all the ETFs are holding onto them as long as they can, but I'm not sure that's the case since PSEC has not continuously declined. I think low $9s would be a great entry point and perhaps possible. The restatement of financials also has me a little worried, management says that NAV won't be affected, but I'm not so sure.
    29 May, 11:19 AM Reply Like
  • lunco
    , contributor
    Comments (128) | Send Message
     
    James_B
    While there may be some indices funds that will be holding PSEC and other BDCs to the very end, I believe that most of they have already sold. Also, management has stated that BV won't be affected by a restatement but to me what is more important is that their leverage ration won't be affected by a restatement. Therefore, I view a restatement, if one should be required to be a positive. But, where or not there is a restatement, I think we'll see PSEC continue a slow climb up in pps until the SEC matter is finally resolved. In the meantime, I continue to focus on earnings and the dividend coverage ratio which needs at some point in the next several months to improve.
    Wishing you the best
    29 May, 11:51 AM Reply Like
  • James_B
    , contributor
    Comments (111) | Send Message
     
    Thank you for the response. Given the nature of the accounting mistake, it seems as though it would be impossible for the NAV to be the same, whether it be increased or decreased. And right now, I'm not too confident in management. If you take one look at their management team, backgrounds and experience, the accounting mistake they made (or at least accused of making) is a relatively simple accounting treatment of the assets they hold. So I guess that is what is holding me up, trust in management. I will continue to watch and hope for a better entry point.

     

    Good luck to you as well.
    29 May, 12:15 PM Reply Like
  • R.Fitz
    , contributor
    Comments (396) | Send Message
     
    James
    When is this indices-adjustment scheduled?
    New to the World of BDC's -- bought PSEC last month tho (ouch
    29 May, 12:52 PM Reply Like
  • James_B
    , contributor
    Comments (111) | Send Message
     
    R. Fitz, off the top of my head I don't know the exact date. There is a writer on Seeking Alpha that is well up to date with BDCs, named BDC Buzz. I think he is very knowledgeable and I read many of his articles. If you have any question about BDCs, he has most likely written about it. He covers the date, what to expect with the removal, dividend coverage, NAVs, etc. I think you should start there if you are new to BDCs. Thanks!
    29 May, 01:45 PM Reply Like
  • critterlitter
    , contributor
    Comments (367) | Send Message
     
    I don't think Prospect mgt. is out to paint a different picture than what will happen once the reinstatement takes place. With regards to the BDC ousting from the Russell, I almost treat that as old news. I forgot the final deadline for that, however, I would think that most of the ETFs and everyone else that wanted to dish off Prospect rather than hold it has done it by now. I certainly can be wrong, but why wait if the price is going to go down more due to it?

     

    I see both of these items to be minor in their effect on the share price going forward from here. If I am wrong and it shows another sizeable drop, then I'll add on again...

     

    Peace.
    29 May, 01:53 PM Reply Like
  • NV_GARY
    , contributor
    Comments (1743) | Send Message
     
    R Fitz
    6/27 at close of business
    29 May, 04:05 PM Reply Like
  • R.Fitz
    , contributor
    Comments (396) | Send Message
     
    NV
    Shoot -- next MONTH!!
    29 May, 07:20 PM Reply Like
  • locutus49
    , contributor
    Comments (879) | Send Message
     
    Love me some PSEC. Long, for the long term.
    29 May, 11:13 AM Reply Like
  • WmHilger1
    , contributor
    Comments (1025) | Send Message
     
    What the dickens are you talking about in this article? Any managment change which reduces management compensation while sending more money to the shareholders is, in my view, a definite positive. Why should the fact that this equates to a 13% dividend yield cause the price of the stock to decrease, except in the narrow-mindedness of people who are insistent that great yields automatically equal greater risks? Don't count me among them! I LIKE to pay less for more income!!!!!!!!
    29 May, 11:15 AM Reply Like
  • jrs03n
    , contributor
    Comments (67) | Send Message
     
    The point is that they are (presumably) being forced to make this shareholder friendly change. Many people are ok with them taking above average fees, leading to essentially zero NAV growth, and collecting the high yield. I am pretty much one of those (but more recently have been migrating more towards the internally managed BDCs). Still, there is no argument that this mgmt could be more shareholder friendly, and the positives that may come from any required accounting changes are evidence of that.
    29 May, 12:29 PM Reply Like
  • TheBaronInvesting
    , contributor
    Comments (222) | Send Message
     
    I am long PSEC, but the biggest problem is a management team that is not shareholder friendly is very unpopular right now.

     

    If PSEC was shareholder friendly, they would have restated financials a long time ago (been accounting for owned businesses the entire time) and been purchasing stock whenever it trades below NAV (like now, its trading ~8% below NAV, and saves them a 13% dividend per unit... That's a no-brainer). The reason they won't is the smaller the size of the company, whether it's smaller through buybacks, or smaller through re-statement, cuts into the management's compensation.

     

    As I mentioned, I'm long the company, and like jrs03n mentions, I'm also okay with the company paying out their 10% yielding investments, along with a small portion of returned capital (as they are just shy of covering the dividend right now), and allowing them to collect the fee income due to stellar business-side management.

     

    Poor stewardship might be unpopular right now, but I'll accumulate a punished stock since it can make me a consistent return. As long as they are good stewards of lended-capital, I'll forgive their self-interested anti-shareholder lack of stewardship on the share-capital side.
    29 May, 01:55 PM Reply Like
  • RWMostow
    , contributor
    Comments (1320) | Send Message
     
    Wm-

     

    Spot on!

     

    -rwm
    29 May, 05:34 PM Reply Like
  • tnale
    , contributor
    Comments (8) | Send Message
     
    The stock always declines on ex-dividend day. I cannot understand why some people buy it for the dividend and then take a capital gain loss, unless it is for tax purposes, dividends taxed lower than capital gains and also needing to offset capital gains.
    29 May, 11:32 AM Reply Like
  • NV_GARY
    , contributor
    Comments (1743) | Send Message
     
    tnale- no problem in tax advantaged accounts-- anyway, the best place for PSEC etc
    29 May, 04:07 PM Reply Like
  • WhitneyB
    , contributor
    Comments (208) | Send Message
     
    I take the contrarian view that a historically high percentage dividend means lower risk, as Mr. Market has already devalued the price of the underlying asset, thus reducing, not increasing, risk.
    29 May, 11:42 AM Reply Like
  • ezrhino
    , contributor
    Comments (128) | Send Message
     
    or something more? OK so someone at seeking alpha is at it again attempting to join in the casino atmosphere surrounding PSEC. The stench is arrising from this bb and the "class action" lawyers (oh and the russell 2000) are clearly attempting to support short sellers. (6% of the stock is alot) and its clear they have supporters here. Whatever the SEC says or does will be the bottom line, we will know it soon enough. I am content to wait, the price will recover and the dividend will continue as promised by management. what else?
    29 May, 12:08 PM Reply Like
  • CincinnatiRick
    , contributor
    Comments (354) | Send Message
     
    "The Street's Dan Freed muses that maybe owners are thinking twice about investing in a management which plays accounting games to line its pockets at the expense of earnings."

     

    Where's the "game"? It has always been so and was a feature of the status quo at the time we bought into the deal (yes, I'm long as of late 2013).

     

    So....best case scenario: management loses and the fees are reduced such that the amounts available for distribution to shareholders are marginally increased. To my mind, that's a windfall...something over and above what I bargained for when I bought in. So, thank you for the gift!

     

    Now...worst case scenario: management prevails with the SEC and the status quo continues. Boo, hoo, hoo. Found money lost!

     

    In either case, the negative publicity has driven the price of the stock down to the point where the return is even more obscene than it already was. What's not to like here? So, yes, I doubled down at $9.76.
    29 May, 12:23 PM Reply Like
  • saratogahawk
    , contributor
    Comments (1567) | Send Message
     
    Its only a "game" if that fact is hidden from shareholders and is not legal. Neither is the case here. It is well known and understood by investors how PSEC does its accounting and is not illegal. The SEC may choose to require a different form of accounting but what PSEC has done is legal and clearly identifiable.
    29 May, 01:13 PM Reply Like
  • jalan1964
    , contributor
    Comments (7) | Send Message
     
    The reason the yield is currently 13% is because the price has been beaten down. However, I don't really care. I've been a long term holder in an IRA and will continue to be one. The dividends I have received and re-invested so far have reduced my cost basis to around $5.50. Keep those dividends coming. I only care about the price when time comes I have to sell.
    29 May, 12:36 PM Reply Like
  • imagemaker
    , contributor
    Comments (7) | Send Message
     
    Jalan--
    Also long PSEC & using this opportunity to reduce cost basis couple of accounts. Time may be right for you to start moving some IRA money into a ROTH. Yes, you have to pay tax upfront, but dividends & reinvestment accumulates in ROTH tax free with no mandatory withdrawals at certain age. Check out the compounding calculator at http://bit.ly/1k4Danc. You will be amazed to see the results of 12-13% reinvestment--and all tax free!
    29 May, 01:28 PM Reply Like
  • critterlitter
    , contributor
    Comments (367) | Send Message
     
    I added at $9.81. It just had to be a day when I didn't have my screen on at 9:30. Oh well --- $9.81 is still ok with me, based on the cost of all my other shares, but a long hold will see the share price above my cost basis anyway. I bought in not for share price appreciation anyway --- no different than most. Just maintain my cost basis and give me a consistent payout and everything will be quite well in my world.

     

    Prospect is already a leader in this BDC world and they are getting bigger. They know what they're doing and continue to show it by their distribution. If they sat at 10% to 13% until the end of time, that's good enough (and long enough) for meeeeeeee...
    29 May, 02:02 PM Reply Like
  • critterlitter
    , contributor
    Comments (367) | Send Message
     
    Max money should be flowing into EVERYONE'S Roth every year. No strings attached except for having to wait for one to age like fine wine and be able to pull any and every penny earned --- void of Big Brother coming in with his trick-or-treat bag open for some of it...
    29 May, 02:05 PM Reply Like
  • Larry Minden
    , contributor
    Comments (6) | Send Message
     
    Critter:
    If already maxing out on 401k contribution can I also add into an existing Roth?
    29 May, 07:20 PM Reply Like
  • Husker Bob
    , contributor
    Comments (272) | Send Message
     
    Larry - You can contribute to a Roth regardless of your 401K as long as your income is not too high. I believe the contribution limits are $5500 annually if under 50, $6500 if over 50. Income limits are available in IRS pubs.
    29 May, 10:30 PM Reply Like
  • tnale
    , contributor
    Comments (8) | Send Message
     
    Married income limit is $188,000 and $127,000 for singles
    30 May, 02:30 PM Reply Like
  • critterlitter
    , contributor
    Comments (367) | Send Message
     
    The Roth is a separate entity in itself. Currently, I think that every individual can contribute $6500 on an annual basis. There is even a consideration whereby if one didn't contribute last year or did not hit the max contribution, one can still put money in for that year. Somebody with more knowledge on it (or just do a bit of homework) can help here. I think one has like a six-month window in the following year to contribute to the previous year. I could be wrong. Like I said, a bit of internet homework can clear that up quickly.

     

    The Roth opportunity is the best opportunity our government will ever provide for us from what I can see. Usually it has its hands in every movement of our life. On a side note, don't pull money from the Roth until you are of age to do so or the government WILL get involved with early withdraw fees that negate the original premise and benefit of this account...

     

    Peace.
    2 Jun, 10:22 AM Reply Like
  • jzut
    , contributor
    Comments (42) | Send Message
     
    Whenever all those high yielders crash on sell first ask ?'s later is the time to buy. Check the charts on HYG and JNK on those big red down lines. I own those along with PSEC. In on PSEC @ 10.06 from June 5th 2013. Look @ Nov 14th 2012. I missed this last one because I got up late and missed the market open. But I will keep a limit order open in the low 9's just in case.
    29 May, 01:32 PM Reply Like
  • critterlitter
    , contributor
    Comments (367) | Send Message
     
    jzut --- I also own a good amount of PSEC shares, and there are other Linn holders that do so. Obviously, we all like our upper-end dividend payers (and monthly at that). We probably are also seen (at the least) as risk-takers. But then again, ANYONE in the stock market is a risk-taker. It just happens that this is our risk-tolerance approach while others take other risk-taking avenues.

     

    Hell, when it gets down to it, what ISN'T a risk in life? We all take a risk just walking down our steps to greet the ugly world we live in every day...

     

    Peace.
    2 Jun, 10:26 AM Reply Like
  • ftg
    , contributor
    Comments (2) | Send Message
     
    Maybe it is time to sue the ambulance chasers for frivolous law suits and driving down the value of the stock.
    29 May, 02:01 PM Reply Like
  • WmHilger1
    , contributor
    Comments (1025) | Send Message
     
    Or, even better, to change this lawyer and lawsuit happy, American legal system over to what the British use --- loser pays the court costs. That would certainly put a quick stop to frivolous law suits.

     

    Ever wonder why so many of our Senators and Representatives are lawyers? So they can protect their own interests!!!!!!!!!

     

    We sorely need a large change in the American legal system, the American Taxation System, and the people in Washington who set up and maintain these fraudulent systems that are terribly skewed in THEIR own favors!
    29 May, 04:16 PM Reply Like
  • Chancer
    , contributor
    Comments (2520) | Send Message
     
    Whenever you have SEC questions about accounting, you can bet there will be class action law suits. While the SEC issue drags out, there will be time for negative articles by the likes of Barron's, Hedgeye, and some Seeking Alpha authors. That could drive the price down further and scare out weak hands,
    29 May, 02:30 PM Reply Like
  • realitician
    , contributor
    Comments (14) | Send Message
     
    One possibility I haven't seen discussed during this PSEC crisis is that, if the SEC wins and PSEC has to restate, the effect on management fees may motivate PSEC talent to leave the company. If that happened, it could affect future performance negatively. As for now, though, I'm holding onto my position in PSEC.
    29 May, 02:44 PM Reply Like
  • Smythbuilt man
    , contributor
    Comments (13) | Send Message
     
    They will just be compensated in a more SEC acceptable way.
    29 May, 05:24 PM Reply Like
  • critterlitter
    , contributor
    Comments (367) | Send Message
     
    Smythbuilt --- I agree. There's an infinite way to compensate the management structure. Hell, $100k in cash taped to the bottom of a fruit basket during the holidays would work for me...
    2 Jun, 10:29 AM Reply Like
  • Phil1937
    , contributor
    Comments (3) | Send Message
     
    If financial creativity were a "kill the deal" issue, there wouldn't be any shareholders on Wall Street. The future is crystal clear, the past is always changing. So the SEC looks at the past ands decide they don't like it and they want to rewrite history.
    29 May, 03:33 PM Reply Like
  • NV_GARY
    , contributor
    Comments (1743) | Send Message
     
    Why doesn't SA identify who writes these little love letters ? No accountability.
    29 May, 04:09 PM Reply Like
  • tnale
    , contributor
    Comments (8) | Send Message
     
    I received this from a stock market letter.
    Third, the Russell 2000 Index Fund has decided to exclude all BDCs from its index. Recently the Security and Exchange Commission issued new accounting rules and reporting requirements to make sure publicly traded investment companies don’t underreport expenses related to their investments. Because of this bizarre rule, BDCs are being removed from the major indexes such as Standard and Poor’s and the Russell 2000. The S&P removed them in March, and the Russell group is expected to drop them on June 27. As a result, many institutions and index funds (such as Vanguard) are selling their BDCs, and this exodus is putting pressure on the price.

     

    So this shows why there has been heavy selling pressure on PSEC
    29 May, 07:10 PM Reply Like
  • smurf
    , contributor
    Comments (3777) | Send Message
     
    Vanguard owns neither PSEC nor any other BDC, for that matter. At least not in their Total Stock Market Index fund which contains some 3700 stocks.

     

    Vanguard doesn't have any niche index funds that cover things like BDC & mREIT sectors. A little too spicy for them.
    30 May, 04:50 PM Reply Like
  • Be Here Now
    , contributor
    Comments (3760) | Send Message
     
    smurf,

     

    Vanguard's Russell 2000 Index ETF (VTWO) does own BDCs, PSEC among them. http://bit.ly/1rtNWY1
    31 May, 10:55 AM Reply Like
  • Workinhard
    , contributor
    Comments (166) | Send Message
     
    Research how PSEC mgmt treated the sale of Gas Solutions , turning lower taxed capital gains (which they would not have earned fees on) into higher taxed dividend income (which mgmt then earned fees on). Then tell me how trustworthy mgmt is. That said, everything has a price, if PSEC sells off into the Russell rebal I may look to go long for a flip.
    29 May, 10:30 PM Reply Like
  • COBeeMan
    , contributor
    Comments (1254) | Send Message
     
    Mgt is not your mother and ALSO acts in their own interests. As long as they pay a good to great dividend, why do you begrudge what fees they make? Greedy much?
    29 May, 10:43 PM Reply Like
  • edexter
    , contributor
    Comments (538) | Send Message
     
    I had bought some at 10.20 and it was probily trading lower than that last year so at $10 it is not that far outside their normal range.. I just bought some more at $9.70 but I will be trading around a price range... I tried to use a future but they seem to compete with long calls and not offer the buyer the decay with the dividend.. I think you should be able to average your price down and trade around a position with $10 calls/puts and get a nice return.
    31 May, 12:30 PM Reply Like
  • bullsbearspigs
    , contributor
    Comments (126) | Send Message
     
    if you want one foot out the door and one in, sell puts or put in tight stops.

     

    if it goes down more, flush it. dont get emotionally attached (and there appear to be a LOT of emotional people in the BDC space...not good)...if you dont like it, sell it.....

     

    trade what you SEE, not what YOU WANT TO SEE

     

    Bulls
    31 May, 01:32 PM Reply Like
  • COBeeMan
    , contributor
    Comments (1254) | Send Message
     
    What do you see?
    1 Jun, 06:14 PM Reply Like
  • bullsbearspigs
    , contributor
    Comments (126) | Send Message
     
    I see a long position at 9.95 in PSEC on my blotter...

     

    And a seasoned magagement team who.is no doubt really pissed off and ready to fix this...

     

    You're only as good as your last trade...

     

    More questions?

     

    Bulls
    2 Jun, 02:44 AM Reply Like
  • 13302632
    , contributor
    Comments (226) | Send Message
     
    I'm a bit surprised PSEC undergoing another gap down (currently 9.62). I acquired more at average price of $9.60. If it breaks $9.50 I'll probably add some more. While I could be wrong, it appears this is just more negative momentum and all based on short term factors which will be resolved in relatively short term.

     

    1)Deindexing of BDC's. (over sometime in June I believe).
    2)SEC mandated PSEC accounting restatement (assured that fundamentals will only improve from restatement).
    3)Implication that management was using and end around to improve their compensation (I've been impressed with management for years, and if they were compensating themselves in a way that SEC didn't like, I would not mind for them to get the same compensation in some other manner).
    4)Publicized investor lawsuits ....the equivalent of ambulance chasers in the securities world capitalizing on the SEC directive of restatement. I don't believe these have any substantial merit and should not affect fundamentals.

     

    The fundamentals have not changed, dividends have already been declared for the current year at over .11 per month (over 13%). Personally, I've seen this kind of stuff a few times, and the probability (not certainty) is that as the earnings continue to come in, the stock price will recover slowly giving a bonus appreciation to the yield. I believe most of the selling is an "ask questions later" avoidance of PERCEIVED risk. There is a bit of a self fulfilling prophecy which creates the negative momentum overselling. If you can overcome your fear this is where you can lock in unusually good yields at the expense of those that panic.
    3 Jun, 01:44 PM Reply Like
  • Dividends#1
    , contributor
    Comments (2211) | Send Message
     
    13302632,

     

    Very well stated comment.

     

    I overcame my fear today and increased my position. I bought at $9.57. My average cost basis is about $9.97 now. I think that is a very good cost basis as a new owner of PSEC, I bought my initial position several months ago at $11.38/share.
    3 Jun, 05:35 PM Reply Like
  • 13302632
    , contributor
    Comments (226) | Send Message
     
    My own basis is a bit higher than yours ($10.18), because I unfortunately bought right before the deindexing was announced. Then it has been a perfect storm with the other issues arriving after there was already a downward selling momentum.

     

    It may not have bottomed yet, but I think there will be substantial price recovery after the restatement (august?). Meanwhile we're paid to wait, so unless it goes down more rapidly than .11/mo we're not losing much but a bit of opportunity cost. I'll accumulate if it erodes further, because I have seen nothing that indicates there will be any slowing of earnings.

     

    In fact, PSEC investments are structured to do well in a rising interest rate environment because they have fixed borrowing costs and floating loan charges. If the latest indications of a US and world economy improving in the 2nd half are accurate, and interest rates begin to rise, PSEC dividends may rise. That could make for a very nice fall in terms of yield and appreciation for PSEC loyalists.
    4 Jun, 09:07 AM Reply Like
  • Jack Cumming
    , contributor
    Comments (68) | Send Message
     
    Hope you are right 133, but these legal actions will cost a lot of money just to defend, and the damage claim will simply be related to the decline of the stock price subsequent to announcement of the SEC challenge to their accounting.

     

    Sometimes I think the SEC needs to tread more lightly in their regulatory actions and get to resolution without burning the place down. Unless, of course, something illegal or underhanded is the focus..........then they have to choice but to use a heavy hand.
    3 Jun, 05:52 PM Reply Like
  • 13302632
    , contributor
    Comments (226) | Send Message
     
    PSEC short interest has jumped lately...don't know the exact number but as of may 15 had gone up 67% from april 30.
    http://bit.ly/1hyYgKl

     

    When the downward momentum stops, expect a relative quick pop up as these guys will short only until then...they don't want to be paying that dividend once it bottoms. I feel much better accumulated on the way down than trying to short this one. I won't be selling under $11, so I wish them good luck in finding shares.
    4 Jun, 11:00 AM Reply Like
  • Dividends#1
    , contributor
    Comments (2211) | Send Message
     
    13302632,

     

    I agree with your comment. We will do well as time passes and these issues clear up.

     

    I calculate my cost basis as decreasing every time I receive a dividend, even if it is reinvested at higher prices. I am reinvesting all dividends going forward. My cost basis always goes down, because I do not plan on buying new shares above my cost basis with new money, if the dividend gets reinvested above my cost basis, I still consider the dividend to decrease my cost basis. I hold all my shares in a SEP IRA and a ROTH IRA, so cost basis is not important for tax reasons only for my personal knowledge as to how my investment has done.

     

    I am in a rush to go to the gym, so if I did not make sense sorry, I tried.
    4 Jun, 12:18 PM Reply Like
  • Workinhard
    , contributor
    Comments (166) | Send Message
     
    Reducing your cost basis by dividends paid out is a dangerous way to think about investing because you get complacent about your holding, thinking that you are "in the money" even if the price goes down. Those dividends are the price you are being paid for taking on the risk of holding a particular stock.
    4 Jun, 02:19 PM Reply Like
  • xxavatarxx
    , contributor
    Comments (2054) | Send Message
     
    Ding Ding Ding
    4 Jun, 02:24 PM Reply Like
  • 13302632
    , contributor
    Comments (226) | Send Message
     
    If he uses all dividends to invest in stock, he can see his total gains in terms of the current price - current basis x shares rationalized against the original investment. Since he can get his total return at each time that he gets a dividend and reinvests, he should be able to get a differential return (from month to month) as well. I am assuming a non-taxable account so tax complications are not present.
    5 Jun, 09:26 AM Reply Like
  • COBeeMan
    , contributor
    Comments (1254) | Send Message
     
    Good job D1! This is the time for accumulating maximum shares at the least cost!
    7 Jun, 10:00 PM Reply Like
  • Dividends#1
    , contributor
    Comments (2211) | Send Message
     
    cha ching, cha ching, cha ching. That is the cash dividends coming in!!!!

     

    Also share dividends from KMR !!!!
    7 Jun, 10:43 PM Reply Like
  • Dividends#1
    , contributor
    Comments (2211) | Send Message
     
    Thanks COBeeMan,

     

    My latest portfolio update and changes as of 6/4/2014:

     

    LATEST UPDATE: 6/4/2014

     

    I had sold a significant amount of KMR last year in the mid to high 80"s and some in the low to high 70's ( made a nice profit) in order to buy AGNC when Mr. Market's voting machine had overreacted resulting in an approximate 20% discount to BV for AGNC shares. Since the discount to BV has narrowed to an approximate 8% or so currently, I decided yesterday to rebalance my portfolio and SOLD ALL my AGNC shares in my taxable account and used the proceeds to buy KMR. I hold most of my AGNC shares in my ROTH IRA now and the rest in my SEP IRA.

     

    By selling AGNC ( taxed as ordinary income) in my taxable account and replacing with KMR ( ZERO taxes in a taxable account because they pay their distribution in shares) I will have zero taxes incurred from my taxable account. Because KMR results in zero taxes it's yield is = to the yield I was receiving from AGNC ( ordinary income tax).

     

    I also did a ROTH Conversion, which put me in a higher tax bracket. I will be paying taxes on the Roth Conversions for the next 2 years (as I am planning to do another one in 2015) I am willing to pay the taxes now, in order to have tax free dividends down the road from the ROTH. I will not convert my entire Traditional IRA, so when I take distributions, I will have to pay taxes then. My goal is to have a low % of my funds in the Traditional IRA, and therefore my taxes will be kept low in the future.

     

    I feel real good about this as I was heavily overweight AGNC last year as it comprised almost 65% of my portfolio. Recently I had sold down to 50% and yesterday I sold down to 42%.

     

    So now my Retirement portfolio is:

     

    AGNC = 41.7%

     

    MO = 38.7%

     

    PSEC = 19.6%

     

    My Taxable Account is:

     

    KMR = 100%

     

    No taxes on the KMR Share Dividends, and when I sell my capital gains will be offset by my carry forward losses ( about 220K).

     

    Allocation when combining Retirement Accounts + Taxable Account:

     

    AGNC = 30% rounded

     

    MO = 28% rounded

     

    KMR= 28% rounded

     

    PSEC= 14% rounded

     

    I had to lighten up on AGNC. My strategy worked out well. KMR is giving me an approximate effective YIELD of 11%, as the share dividends are NOT taxed. Also, my past carry forward losses should offset my future capital gains of KMR for quite some time. I will sell shares when we need income.
    7 Jun, 10:53 PM Reply Like
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