Assessing the Sustainability of Prospect Capital Corp's Dividend Payments
Prospect Capital Corp (PSEC, Financial) recently announced a dividend of $0.06 per share, payable on 2024-01-18, with the ex-dividend date set for 2023-12-26. As investors look forward to this upcoming payment, the spotlight also shines on the company's dividend history, yield, and growth rates. Using the data from GuruFocus, let's look into Prospect Capital Corp's dividend performance and assess its sustainability.
What Does Prospect Capital Corp Do?
Prospect Capital Corp is a closed-end investment company based in the United States. Its investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. The company invests primarily in senior and subordinated debt and equity of private companies for acquisitions, divestitures, growth, development, recapitalizations, and other purposes. It makes investments, including lending in private equity, sponsored transactions, directly to companies, investments in structured credit, real estate, and syndicated debt.
A Glimpse at Prospect Capital Corp's Dividend History
Prospect Capital Corp has maintained a consistent dividend payment record since 2004. Dividends are currently distributed on a monthly basis. Below is a chart showing annual Dividends Per Share for tracking historical trends.
Breaking Down Prospect Capital Corp's Dividend Yield and Growth
As of today, Prospect Capital Corp currently has a 12-month trailing dividend yield of 11.65% and a 12-month forward dividend yield of 11.65%. This suggests an expectation of same dividend payments over the next 12 months. Extended to a five-year horizon, this rate decreased to -0.90% per year. And over the past decade, Prospect Capital Corp's annual dividends per share growth rate stands at -6.90%.
Based on Prospect Capital Corp's dividend yield and five-year growth rate, the 5-year yield on cost of Prospect Capital Corp stock as of today is approximately 11.14%.
The Sustainability Question: Payout Ratio and Profitability
To assess the sustainability of the dividend, one needs to evaluate the company's payout ratio. The dividend payout ratio provides insights into the portion of earnings the company distributes as dividends. A lower ratio suggests that the company retains a significant part of its earnings, thereby ensuring the availability of funds for future growth and unexpected downturns. As of 2023-09-30, Prospect Capital Corp's dividend payout ratio is 36.00, which may suggest that the company's dividend may not be sustainable.
Prospect Capital Corp's profitability rank, offers an understanding of the company's earnings prowess relative to its peers. GuruFocus ranks Prospect Capital Corp's profitability 3 out of 10 as of 2023-09-30, suggesting the dividend may not be sustainable. The company has reported net profit in 8 years out of the past 10 years.
Growth Metrics: The Future Outlook
To ensure the sustainability of dividends, a company must have robust growth metrics. Prospect Capital Corp's growth rank of 3 out of 10 suggests that the company has poor growth prospects and thus, the dividend may not be sustainable. The company's 3-year EPS growth rate showcases its capability to grow its earnings, a critical component for sustaining dividends in the long run. During the past three years, Prospect Capital Corp's earnings decreased by approximately -120.70% per year on average, a rate that outperforms approximately 2.93% of global competitors.
Next Steps
In conclusion, while Prospect Capital Corp offers an attractive dividend yield, the sustainability of its dividend payments raises some concerns. The dividend growth rate, payout ratio, profitability, and growth metrics indicate potential challenges ahead. However, for investors seeking high-dividend yield stocks, the company's current yield may still be appealing. It's important to weigh the high yield against the possibility of future dividend cuts or stagnation. Value investors should consider these factors carefully when evaluating Prospect Capital Corp as a potential investment. GuruFocus Premium users can screen for high-dividend yield stocks using the High Dividend Yield Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
