Prospect Capital (PSEC): A High Yielder With Massive Insider Buying

A high dividend yield, large-scale buying by company insiders, and recent buying by funds controlled by Joel Greenblatt and George Soros. Sound interesting? Then I suggest you take a look at shares of Prospect Capital Corporation (PSEC), a business development company traded on the Nasdaq. If you’re unfamiliar with BDCs, you can think of them as publicly traded private equity firms. BDCs provide financing to small and middle-market companies that are too early in their development to get funding from more traditional sources, such as the bond and equity markets.

It’s a high-risk but potentially very high-return financing niche. Similar to real estate investment trusts, or REITs, BDCs pay no taxes at the company level on the condition that they distribute at least 90% of their income to their investors via dividends. This makes BDCs some of the highest-yielding investments on the market, but — as is the case with REITs and MLPs — their inability to retain earnings for future growth also means that they regularly have to issue new shares, which dilutes current shareholders. That’s not necessarily a bad thing if new investments are accretive to earnings, but it means that management has to be extremely disciplined.

Source: InvestorPlace

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