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Prospect Capital Corp.: Should You Still Buy This 10.5%-Yielding BDC Dividend Dog?

Feb. 07, 2019 5:14 PM ETProspect Capital Corporation (PSEC)45 Comments
Achilles Research profile picture
Achilles Research


  • Prospect Capital Corp. released Q2-2019 financial results on Wednesday after the market closed.
  • The BDC reported net investment income that matched expectations but also reported a rather steep NAV drop based on unrealized losses in its portfolio.
  • Shares are now priced at a 24 percent discount to Q2-2019 NAV.
  • An investment in PSEC yields 10.5 percent.

Prospect Capital Corp. (NASDAQ:PSEC) reported financials for its second fiscal quarter yesterday after the market closed. The business development company covered its dividend with net investment income in the last quarter but also reported a sequential NAV drop. Prospect Capital Corp. makes a moderately attractive value proposition for high-yield investors that seek to capture high, recurring dividend income going forward. An investment in PSEC at today's price yields 10.5 percent.

Prospect Capital Corp. - Earnings Snapshot

Prospect Capital Corp. reported results for its second fiscal quarter on Wednesday that matched estimates. The business development company said it pulled in $0.22/share in net investment income compared to $0.23/share in NII in the previous quarter. The consensus was for Prospect Capital Corp. to also report Q2-2019 earnings of $0.22/share.

However, Prospect Capital Corp.'s net asset value dropped in the last quarter. The BDC said its NAV hit $9.02/share at the end of the December quarter due to unrealized losses in its portfolio. In the previous quarter, Prospect Capital Corp.'s net asset value stood at $9.39/share in the previous quarter, which reflects a 3.9 percent decrease.

Here's a NAV bridge.

Source: Prospect Capital Corp. Earnings Release

In terms of portfolio quality, the business development company saw an uptick in non-accruals which rose from 2.4 percent in the quarter ending September to 3.6 percent in the quarter ending December. Loans are placed on non-accrual status if the collection of interest payments and the repayment of the principal is at risk. The deterioration in Prospect Capital Corp.'s portfolio quality and associated NAV drop were the two negatives in the BDC's earnings release.

Here's Prospect Capital Corp.'s non-accrual trend over the last six quarters.

Source: Achilles Research

Distribution Coverage

Prospect Capital Corp. outearned its dividend with net investment income in the last quarter, which is good for investors

ChartData by YCharts

This article was written by

Achilles Research profile picture
I am a dividend investor and look for undervalued investments in the stock market. I identify misunderstood and undervalued equity investments and hold those securities until their price approximates my estimate of intrinsic value. I am a long-term investor only. I am building a $100,000 high-yield income portfolio. I am running this portfolio as an experiment to see if long-term sustainable income can be generated from a diversified pool of high-risk, high-yield securities. I am willing to accept high risk in order to meet my performance goals.

Analyst’s Disclosure: I am/we are long PSEC, MAIN, GSBD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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