PSEC Is Offering a High Dividend Yield
Income investors are always looking for the next investment opportunity that offers a steady source of income and value proposition. That’s why today we’ll be taking a look at a stock that is offering a notably high dividend yield of 12.25%.
The company in question is Prospect Capital Corporation (NASDAQ:PSEC). A financial services company, Prospect Capital lends to and invests in middle-market privately held companies. The company is very diversified, with real estate investments, online lending products, aircraft leasing, and controlling investments in financial companies. Such a diversified portfolio generates a lot of cash flow and a high dividend yield, since the investments are made into different, varied business cycles.
Earn a Monthly Income
Most companies that pay out a dividend do so quarterly, but PSEC is a unique dividend-paying stock, in that its payout is monthly. That monthly dividend is currently $0.08333 per share. A total of $15.96 would have been paid out to investors who got in on the initial public offering (IPO), which, at the time, was $15.00 per share. (Source: “Prospect Capital Corporation,” Prospect Capital Corporation, May 2017.)
The high dividend yield has always been part of the company, with the yield never going below 10% over the past five years. To get a sense of how large the current yield of 12.25% is, note that it is six times more than the average market dividend yield being offered.
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Cheap Valuation
PSEC stock features a cheap valuation, based on the current price-to-earnings (P/E) ratio of 9.9 times. This is about a third of the P/E ratio for the industry average. The reason why Prospect Capital’s ratio is low compared to the overall industry is that the market share is shared among all these companies, and their margins tend to be alike. They are also affected similarly by the state of the economy. Further, if there are any tax breaks given by the government, there is normally an equal playing field, in terms of what all companies receive.
The expectation is that the P/E trades either in line with the industry or above it; in other words, the company’s earnings have to increase. Prospect Capital stock currently has nine investments with the potential to see upside on the initial capital. While these stand to eventually boost income, investors can enjoy the yield on the current investments in the meantime.
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A third reason to be bullish on PSEC stock is the actions of insiders, who own more than 6.5% of the company. This signals to the markets that the company’s own administration is bullish on the company because they believe that their money will grow as the company does.
Bottom Line on PSEC Stock
The No. 1 goal of investing is to grow money over time, which an investment in PSEC stock could accomplish, through both its being an income source and through the capital gains in the share price. If you’re looking for an investment to park your money in, PSEC stock’s monthly payout may be right for you. Also, since savings accounts are not yielding a high amount, this is a great alternative to those as well.