Another Look at a Popular Double-Digit Yield

Marc: "An easy chance to double your money on America's debt bubble..." According to Marc Lichtenfeld, you don't have to worry about America's debt bubble. In fact, his research shows that it will soon end with an historic opportunity worth $93 trillion. This coming "black swan" event will last just three minutes. Yet it will transform the playing field for generations of income investors. Investors who prepare now could pocket up to 164% – quickly – along with double-digit dividends, for life. That's why Marc has created this special presentation with all the details, including recommendations. Simply click here now for instant access. Wednesday, December 31, 2014 The Safety Net: A Safe 12% Yield on the Most Popular Safety Net Stock Marc Lichtenfeld, Chief Income Strategist, The Oxford Club Editor's Note: We've come to the end of 2014. Happy new year! While Marc vacations with his family far from the office, we're wrapping up the year by resending you his comments on a stock that is extremely popular with readers. In fact, we get more questions and comments on this stock than any other. Marc's thoughts on the safety of its double-digit dividend yield are below. The article was originally published on October 22. Enjoy. - Andrew Snyder Without a doubt, the most requested stock for the Safety Net each week is Prospect Capital Corp. (Nasdaq: PSEC). Prospect Capital is a business development company (BDC). BDCs fund other businesses either with equity investments or loans. Because BDCs typically collect high interest rates on the loans they make and must pay out 90% of their income in the form of dividends, they offer shareholders higher yields than most companies. So far in 2014, Prospect Capital has made $2 billion in loans. Its latest, announced Monday, was an $86.1 million loan to Onyx Payments, which is the largest processor of payments to hotels. Prospect Capital is popular because of its 12.8% annual dividend yield, which is paid monthly. When I last looked at the company in April, I mentioned that in 2013 and through the first two fiscal quarters of 2014 (its fiscal year ends in June), the company did not generate enough net investment income to cover the dividend. However, Prospect Capital had just raised $300 million that it was going to put to work, which should lift net investment income higher. For the full fiscal year, the company's net interest income was $1.19 per share, while it paid out $1.32 in dividends. Rising Dividend Prospect Capital has raised the dividend for 55 consecutive months, though usually by fractions of a penny each month. The September dividend was $0.110525, increasing to $0.110550 in October. The company continued to raise the dividend by $0.000025 per quarter so that the recently declared January dividend will be $0.110625. The company claims that in the near term, it can continue to sustain the dividend with net interest income and a prepaid tax asset. In other words, the company prepaid some taxes. Now, it will not have to pay them, even though it shows up as a tax expense. So it can use the funds it is not paying in taxes to pay the dividend. This is not the optimal way of paying dividends, but management has made it clear that paying the dividend is a priority in the near term. Longer term, however, we need to start seeing some evidence that the company's net interest income will be high enough to sustain the dividend. In the short term, I don't expect to see a problem paying and even continuing to raise the dividend by a fraction of a penny. Intermediate term, I want to see net interest income at least as high as the dividend and preferably higher. A dividend cut is not likely, but it's no longer the slam dunk it once was. Dividend Safety Rating: B If you have a stock whose dividend safety you'd like me to analyze, leave the ticker symbol using the comment link below. P.S. If you're on Twitter, you can follow me @stocksnboxing and follow Wealthy Retirement @WealthyRetire.   Recent Articles: Wealthy Retirement Top Tips From 2014: For my last column of the year, I thought I'd look back at the columns that resonated most with you and boil them down to the highlights. Think of it as the Cliffs Notes for a wealthy retirement. CAUTION: This 15% Yield May Go Off the Deep End: It's no surprise that with the slump in oil prices, investors who have their money in high-yielding energy plays are getting antsy. Find out why the picture isn't so rosy for this high-yielding oil industry player. Recent Articles: Investment U How to Secure Interest Rates as High as 24.90%: A new disruptive technology is changing the face of finance. 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