Prospect Capital Corporation joined an unfortunate group of BDCs that have cut dividends as yields weigh on the industry’s earnings. Prospect Capital’s $0.0833 per share monthly dividend ($1.00 per year) was reduced to $0.06 per share each month ($0.72 per year).
The company reported that it earned net investment income of $0.19 per share in the second quarter, giving it very little coverage of its reduced dividend payout. Earnings were $0.14 per share, due to losses in its investment portfolio.
Many are speculating that the dividend could be cut again in the not so distant future. Prospect Capital only declared its new $0.06 dividend for two months, which gives it ample opportunity to revisit the dividend for another cut if it deems it appropriate. Prospect Capital blamed declining income on its conservative approach, an interesting argument since its net asset value has dropped due to write offs and investment losses.
Executing our strategy to preserve capital, reduce risk, and avoid “chasing yield” through investments deemed too risky with a poor risk/return profile at this point in the economic cycle, we reduced originations this quarter to about half the levels of the prior quarter. We remain committed to our historic credit discipline. We currently have a robust pipeline of potential investments in our target range for credit quality and yield. We believe our disciplined approach to credit will serve us well in the coming years, just as that disciplined approach has served us well in past years.
This is not the first dividend cut for Prospect Capital. See its dividend history.