Prospect Capital Corporation (PSEC) is a business development company that specializes in various financial activities as well as real estate and private equity investments. It invests in several sectors, especially energy and industrials. Its assets are very diversified and the company has seen increasing revenues in the past 3 years. However, the company itself has not grown very much in the same time frame. The dividend has been consistent since 2018, paying .06 per share or a yield of 11.92%, as the share price is roughly $6. The dividends are also paid monthly. Consistent dividend payments are one indicator of company health but not the only indicator.

Another indicator of company health is price appreciation or depreciation. If the price has been rising year after year, this is typically a good sign. If it has been declining, this could indicate financial struggles which would make it a riskier investment. Over the past year, the stock has depreciated by -16.69%, -20.32% over the past 5 years, and -46.50% over the last 10 years. This could also indicate that the company is not reinvesting back into the growth of its business and is paying a dividend it cannot sustain long term. No investment is without risk and being in the financial sector, this company may be affected by economic cycles and disruptions in the financial market.

PSEC’s dividend has long been attracting investors to its dividend yield of 11.92% but is it safe? You should never invest in a stock only because of the dividend. There is more to examine before making a decision. Examining the track record, we can see that the company has kept its dividend payments consistent for 45 consecutive quarters, proving a commitment to shareholders and representing a strong financial standing. They have been able to maintain the dividend because of their diversified investment portfolio. Being diversified helps to have a form of protection when a type of investment underperforms. They have also kept the payout ratio around 72%. This ratio indicates how much of their earnings are typically paid out as dividends. Ideally, this should be below 60% but it is common to see a higher ratio with financial and real estate companies. While they have not experienced much recent company growth, they have been able to provide a balance between rewarding shareholders and maintaining financial stability.

As with any investment, it is important to check on the stock’s performance a few times per year as well as any news that could affect the company. As of now, August 2023, I am buying PSEC in my portfolio for the reliable although not increasing, dividend income.