Prospect Capital: Dividends, Not Capital Gainshttp://www.fool.com/investing/general/2014/04/16/prospect-capital-dividends-not-capital-gains.aspx Jordan Wathen
April 16, 2014
Business development companies are a mixed bag of investment potential. Some BDCs seek to provide income in the form of dividends, and capital gains from a rising share price.
Others, however, focus primarily on yields. A company like Prospect Capital (NASDAQ: PSEC) fits in the yield category, and thus investors should expect only limited capital gains.
Here's why Prospect investors should bank on yields, not capital gains.
1. Convertible debt
A recent filing shows that a block of 2015 notes is convertible at $11.23 per share. If shares trade above the conversion price, the debt can be swapped for stock.
These share sales aren't dilutive, as they're well above the last-reported NAV of $10.73 per share, but they do constrain the share price, as new shares will be issued when share prices are above the conversion rate.
2. At-the-market sales