Prospect Capital Corporation (PSEC) is a business development company, or BDC. The company invests in middle market companies with an “enterprise value between $5 million and $1000 million,” according to the company's profile. Prospect invests in both the companies’ secured and unsecured debt as well as their equity.
By several metrics, Prospect’s stock looks cheap. The
company’s price to book value ratio on July 31st was 63%. This means
each share of the company’s stock trading at $5.01 a share corresponded to
$7.98 of the company’s equity. Prospect also pays a monthly dividend of $0.06
per share, giving the company an annual dividend yield of over 14%.
Prospect Capital’s cheapness raises a question. Is it a high quality company I can “buy and hold” forever while it compounds my investment?
To see if Prospect Capital is a high quality company, we can use the same methodology I used in my May 2020 article about Ladder Capital. We can look at how much value the company has created for shareholders since its 2004 IPO. This will help us predict the company’s future value creation, and thus the company’s possibilities for future share price growth and dividends. (Read More)
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