Prospect Capital Corp.’s Dividend Sustainability Analysis (Post Fiscal Q4 2013 Earnings) – Part 1

By Scott Kennedy:

Focus of Article:

The focus of this article is to provide a detailed analysis with supporting documentation (via four tests) on the dividend sustainability of Prospect Capital Corp. (PSEC). This analysis will be performed after a brief discussion regarding the following topics in relation to PSEC: 1) general business overview; and 2) regulated investment company (‘RIC’) classification per the Internal Revenue Code (‘IRC’).

Understanding the tax and dividend payout characteristics of PSEC will provide investors with an overall better understanding of the business development company (‘BDC’) sector as a whole. Due to the fact PSEC has produced an annual dividend yield between 10% – 13% over the past several years, many investors have chosen this stock (including other stocks within the BDC sector) for income-producing equity investments. From reading this article, investors will better understand how a RIC comes up with its current dividend rate and specific signs

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