I recently covered Prospect Capital (NASDAQ:PSEC), its primary operations involving lending money to small companies to help them grow and expand while being paid back with interest. After its quarterly report, I argued that the stock was a buy after being beaten down several percentage points. The stock had been solid for sometime, trading predominantly in a range of $10.00 to $12.00 for years. It recently dipped into the $9.00 range briefly after a string of bad news. I maintain that a solid strategy has been to buy on the dips and reinvest the dividends to compound the investment. This is because the stock sports a 12 percent yield and pays monthly dividends. The stock is a fantastic buy for a tax favored account in my opinion.
It should be pointed out that after declaring dividends for the remainder of 2014, it will have paid out 74 consecutive payments. To top it all off, the dividends are being increased this year and will max out at 11.0600 cents per share in December 2014. After some of the volatility, the purpose of this article is to provide an update and reiterate my buy recommendation after receiving some very positive news.
Prospect Capital recently announced that based on its discussions with the staff of the Division of Investment Management and the Office of the Chief Accountant of the Securities and Exchange Commission, Prospect Capital will not be required to restate its prior period financial statements to consolidate certain wholly owned or substantially wholly owned holding company subsidiaries.
Prospect announced in its filing on Form 10-Q for the quarter ended March 31, 2014 on May 6, 2014 that the Securities and Exchange Commission staff had asserted certain wholly owned holding companies were investment companies. Due to this, it was suggested that such companies were required to be consolidated in the historical financial results and financial position of Prospect Capital. Thus, the real possibility that the company would have to conduct a restatement of such financial statements came to light. This sent shares spiraling.