Is Prospect Capital a Worthwhile Investment?

This column originally appeared exclusively first for Stock Investor Cheat Sheet premium subscribers on February 11th and has been updated to reflect current data changes.

These stocks are hitting our Profit Targets. Click here now to discover winning stocks!

With shares of Prospect Capital Corporation (NASDAQ:PSEC) trading at around $11.39, is PSEC an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

dividendsIf you’re looking for a safe investment with substantial yield, then Prospect Capital should be strongly considered. It’s not easy to find a safe investment that yields 11.50 percent. Prospect recently announced its 55th, 56th, and 57th consecutive cash distribution to shareholders. Since 2004, there has been over $675 million in cumulative distributions.

Q2 EPS came in at $0.51 per weighted average number of shares. This was a 55 percent increase year-over-year. Q2 net investment income was $99.2 million, which was a 172 percent increase year-over-year. Net investment income for the current quarter is expected to come in between $0.27 and $0.21 per weighted average number of shares. Net investment income per weighted average number of shares has exceeded cash distributions per share for five consecutive quarters.

Origination efforts last quarter focused primarily on securitized loans, especially first-lien loans. Prospect Capital is also looking to close selected subordinated debt and equity investments. Prospect Capital has seen increased investments in third-party equity sponsor-owned companies and has three new investments in the real estate market that total nearly $50 million. Most importantly, Prospect Capital is one of the largest middle-market credit groups in the industry, which allows the company to strategically select the best investments out of thousands of opportunities.

Let’s take a look at some important numbers prior to forming an opinion on this stock.