Prospect Capital (PSEC) | Month-to-month Dividend Security Evaluation

Up to date on October twenty fourth, 2025 by Bob Ciura

Enterprise Improvement Firms — or BDCs, for brief — enable traders to generate earnings with the potential for sturdy complete returns whereas minimizing the tax paid on the company degree.

Regardless of these benefits, traders usually keep away from enterprise growth firms. This can be because of the tax implications of their distributions for his or her shareholders. However even with the added headache come tax time, BDCs can nonetheless be worthwhile for earnings traders.

Prospect Capital Company (PSEC) is likely one of the extra engaging enterprise growth firms out there at this time.

Prospect stands out from the gang in that it pays month-to-month dividends, giving its shareholders a gradual and predictable passive earnings stream, which is extremely interesting to earnings traders.

There are presently simply 78 month-to-month dividend shares. You possibly can obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter, like dividend yield and payout ratio) by clicking on the hyperlink beneath:

Prospect Capital’s dividend yield is over 19%, greater than ten instances that of the typical S&P 500 Index. Our full checklist of shares with 5%+ dividend yields is right here.

Prospect’s excessive dividend yield and month-to-month dividend funds are two of the explanation why the corporate deserves additional analysis. This text will focus on the funding prospects of Prospect Capital Company intimately.

Enterprise Overview

Prospect Capital Company is a Enterprise Improvement Firm based in 2004. It is likely one of the largest, with a market cap of virtually $1.3 billion.

Prospect Capital is a number one supplier of personal fairness and personal debt financing for middle-market firms, broadly outlined as an organization with between 100 and a pair of,000 workers.

Prospect Capital advantages from working within the center market as a result of it lacks competitors from bigger, extra established lenders.

Supply: Investor Presentation

Center-market firms are usually too small to be clients of economic banks however too giant to be served by the small enterprise representatives of retail banks. Prospect Capital does enterprise within the “candy spot” between these two providers. This lack of competitors on this sector has allowed Prospect Capital to finance some really engaging offers.

Buyers ought to word that Prospect Capital is extremely uncovered to risky rates of interest. It’s because the corporate’s liabilities are almost all at mounted charges, whereas its investments are almost all floating-rate devices. Meaning curiosity expense is basically mounted, whereas curiosity earnings rises and falls commensurately with prevailing rates of interest.

As rates of interest rise, the revenues from Prospects floating-rate interest-bearing belongings will enhance. On the similar time, Prospect’s curiosity expense will stay fixed since most of its debt is mounted. In fact, the other is true, as falling charges usually imply declining curiosity earnings.

This makes Prospect Capital an excellent portfolio hedge in opposition to interest-sensitive securities like REITs and utilities, nevertheless it underperforms when charges are very low and when charges are declining.

Prospect Capital’s versatile origination combine can also be a significant constructive from an investor’s perspective, provided that the big variety of devices it makes use of to supply earnings helps it discover the most effective alternatives.

The corporate has many alternative methods to speculate with goal firms, together with various kinds of debt and fairness. All of them have totally different threat ranges and charges of return.

Prospect Capital’s willingness to hunt out the most effective devices — and having the dimensions to take action — is a significant benefit over different middle-market BDCs. The corporate’s funding technique is central to its long-term development.

Progress Prospects

Prospect Capital’s development prospects stem largely from the corporate’s capacity to:

Increase new capital through debt or fairness choices
Make investments this new capital in deal originations with an inside charge of return larger than the price of capital raised in Step 1

Prospect’s capacity to supply new offers that provide acceptable risk-adjusted returns is crucial a part of this course of.

Fortuitously for the corporate (and its traders), there isn’t a scarcity of latest offers for Prospect’s consideration. The corporate has hundreds of deal alternatives annually, permitting it to be very selective in its funding decision-making.

Prospect posted fourth quarter and full-year outcomes on August twenty sixth, 2025, and outcomes had been weak as soon as once more as the corporate continues to battle. Web curiosity earnings for the quarter was 17 cents per share. NII was down from 25 cents from the identical interval a 12 months in the past. Whole income plummeted 21% year-over-year to $167 million.

Whole originations had been $271 million, up from $196 million within the prior quarter. Whole repayments and gross sales had been $445 million, up from simply $192 million in Q3. Web originations, then, fell from $4 million in Q3 to -$175 million within the remaining quarter of the 12 months, shrinking the corporate’s portfolio to $6.67 billion. That’s down from $7.72 billion a 12 months in the past.

Annualized present yield for all investments rose to 9.6% from 9.2% in Q3, however decrease from 9.8% a 12 months in the past. Nonaccrual loans had been 0.3% of complete belongings from 0.6% in Q3. NAV was $6.56 per share, down from $7.25 in Q3 and $8.74 in final 12 months’s This fall.

Dividend Evaluation

Prospect Capital’s dividend is the plain motive traders would select to personal the inventory, so it’s crucial that the dividend is as protected as attainable. As a BDC, Prospect Capital has no selection however to distribute basically all of its taxable earnings to shareholders. Due to this, its payout ratio will all the time be very excessive and generally variable.

In different phrases, the dividend is definitely lined by web funding earnings and has been for a while, that means the payout must be comparatively protected, barring a large affect from any potential financial downturn.

The corporate has declared 4.6 billion in cumulative distributions to shareholders since its IPO.

Clearly, the draw for Prospect Capital is in its capacity to generate money to return to shareholders, and over time, it has performed that effectively.

The dividend seems protected for now, however traders ought to repeatedly monitor the corporate’s web funding earnings for any indicators of hassle that might probably result in additional cuts down the street.

Associated: 3 Causes Why Firms Reduce Their Dividends (With Examples)

Last Ideas

Prospect Capital’s excessive dividend yield and month-to-month distributions are two of the primary causes an investor may take an curiosity on this inventory.

Taking a better look reveals that this BDC has a high-caliber management workforce and has positioned itself to thrive in most environments.

Nonetheless, the dividend seems to be on shaky monetary floor, that means Prospect is just value a search for these traders in search of excessive ranges of present earnings and month-to-month funds, plus abdomen the inherent dangers of proudly owning a BDC.

Don’t miss the sources beneath for extra month-to-month dividend inventory investing analysis.

And see the sources beneath for extra compelling funding concepts for dividend development shares and/or high-yield funding securities.