Prospect Capital Is an Affordable Dividend Cash Machine

PSEC stock offers a terrific yield and slow-but-steady returns without breaking the bank

Middle-market senior and secured lending specialist Prospect Capital (NASDAQ:PSEC) isn’t a company that generates red-hot buzz on social media. You won’t find heated conversations about PSEC stock. But that should be just fine for more risk-averse investors.

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The shares are also accessible to amateur and professional traders alike. That’s because PSEC stock trades at a very low price point. At the same time, it’s not so cheap that investors might question the company’s legitimacy.

Perhaps the stock’s biggest draw is its highly impressive dividend yield. I wish that more folks would appreciate the magic of compound interest and realize that reinvesting dividends can really grow an account over time.

This strategy has worked wonders for Warren Buffett, and it can work for you, too. Best of all, you won’t need Buffett’s billions to take a position in this rock-solid company.

A Closer Look at PSEC Stock

Like many stocks in the financial sector, Prospect Capital topped out in 2007, right before the Great Recession. Technical traders probably won’t like the fact that its share price has declined steadily since that time.

On the other hand,  PSEC stock has been steady lately. Granted, it tumbled in March due to the novel coronavirus’s impact on lenders.

However, that’s not Prospect Capital’s fault. Besides, its share price has held steady at the $5 level since July. That’s an important level because anything below $5 is considered a penny stock by the Securities and Exchange Commission.

Therefore, the bulls will definitely want to keep Prospect Capital above $5 and then start working back towards its pre-pandemic price of $6.50. That would be a minor victory; but when there’s a global pandemic going on, it’s all about the baby steps.

A Dividend Darling

When people discuss dividend stocks, oftentimes they’ll talk about energy stocks or possibly real estate stocks. The problem with those categories of stocks is that they’re subject to boom-and-bust cycles.

That is undoubtedly also true of the financial sector, but there will always be a need for lenders. And Prospect Capital is one of the most reliable lending institutions in the country, providing debt financing to private, middle-market companies even during the most challenging times.

Speaking of being reliable, Prospect Capital is unwavering in its commitment to income-focused investors. Just recently, the company announced its 37th and 38th consecutive six-cent-per-share dividend payouts.

Assuming a share price of $5.17, that would constitute an annualized dividend yield of 13.9%.

Now that’s what I call a dividend darling. Even while other companies are slashing their yields or eliminating them altogether, Prospect Capital is standing tall and proud with its nearly 14% dividend yield.

Steady As She Goes

If you’re looking for a steady company instead of a race car, Prospect Capital is a great choice. Plus, this company doesn’t have the scandals and stigmas of certain big banks, whom I won’t name here (but you probably know which ones I’m talking about).

Prospect Capital’s fiscal fourth-quarter earnings results also show that Prospect Capital isn’t speedy, but it is steady. For instance, Wall Street analysts, on average, expected Prospect Capital to post Q4 earnings per share of 16 cents. The actual result, at 16 cents, was exactly in-line with this projection.

As far as the company’s Q4 revenues were concerned, analysts’ average estimate was $143.37 million. Prospect Capital’s actual top line came in at $145.229 million, slightly beating the Street.

These results won’t get Prospect Capital airtime on loud, flashy financial programs or millions of postings on message boards. If that’s what you’re seeking, feel free to load up on electric-vehicle stocks or maybe the latest initial public offering.

Or you can focus your attention on a company that lends much-needed capital to a variety of private businesses. You won’t get flash; you’ll just see cash in your account when those dividends are paid out.

The Bottom Line

Dividend investors should research PSEC stock and add it to their portfolios if they like what they see. And, with the company’s consistent yield and solid financials, there’s plenty to like when it comes to Prospect Capital.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.


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