Dividend Stocks to Buy for Double-Digit Returns: Prospect Capital (PSEC)
Dividend Yield: 10.8%
Along the same lines, I’d recommend fellow business development company Prospect Capital Corporation (NASDAQ:PSEC).
Prospect Capital is a controversial stock in the BDC space. Unlike Main Street, which runs a very conservative dividend policy, Prospect Capital tends to be a little more aggressive, which has caused the company problems in the past. PSEC had to cut its dividend in early 2015, which alienated some of its retail stockholders who had been depending on the monthly dividend to pay their bills.
It didn’t help that Prospect is externally managed and has a more opaque management compensation scheme than a lot of other BDCs.
All of this helped to depress Prospect’s share price, which has created a nice opportunity for investors willing to go against the grain. At current prices, Prospect yields 10.8%. So the share price could actually fall by nearly a percent per year and you’d still be earning a nice double-digit return.
Prospect is not without its risks. Its investment income covers its dividend by a pretty narrow margin most quarters. But this BDC also trades at a slight discount to its NAV, which gives you some degree of safety, and this stock has had some of the strongest insider buying I’ve ever seen over the past few years. All in all, I like our odds.