BDC stock: Prospect Capital (PSEC)
Dividend frequency: Monthly
Current rate: $0.08333 per PSEC share
History of PSEC’s Dividend
When Prospect Capital went public, it didn’t own any investments. Its dividend generally increased with the growth in its investment portfolio in the quarters that followed. Starting in the second quarter of 2010, Prospect Capital switched from paying quarterly dividends to monthly dividends. The change in policy came with a dividend cut, as the quarterly rate declined from $0.41 per share to $0.10 paid monthly, or from $0.41 per quarter to $0.30 per PSEC share, per quarter. This happened just as Prospect Capital was issuing millions of shares of stock to acquire Patriot Capital.
The company adopted its policy of increasing dividends gradually after the cut. Each month, dividends increased superficially, growing at a rate of about 1/40th of one cent every month. PSEC maintained this dividend — and the gradual increases — until its annual meeting in December 2014, when the Board of Directors voted to cut the distribution from roughly $0.33 per share to $0.25 per share, per quarter. (The actual amount was $0.08333 per PSEC share.)
Prospect Capital has maintained its $0.08333 monthly dividend since its last dividend cut in 2014.
Material changes in PSEC’s dividend policy
Prospect Capital’s most significant changes in dividend policy occured in 2010 and 2014.
Dividend cut: June 18, 2010
Prospect Capital announces its intention to begin paying monthly dividends. The press release includes a quote from PSEC’s CEO, John Barry. “Given the attractive environment for investment opportunities, we are adjusting our distributions to retain capital for reinvestment,” said John F. Barry III, Chairman and Chief Executive Officer of Prospect. “We have closed numerous transactions in the past several weeks, and we currently enjoy a pipeline of term sheets and other future potential opportunities more robust than in the past.”
Dividend cut: December 8, 2014
Prospect Capital cuts its monthly dividend from approximately $0.11 to its new rate of $0.8333 per PSEC share. In an 8-K filing, John Barry again reflects on the dividend policy change.
“We believe there may be upside to our new reduced dividend level, a dividend level we believe we can sustain over the next year and longer even with no dividends or fees from portfolio companies. We also believe we should wait for upside events to occur before committing to any increase in our dividend. If we earn one penny per quarter or more in dividends or fees from portfolio companies, we expect to earn $1.00 per share or more in NII over the next twelve months (25 cents per share or more on average each quarter). As a result, we believe 8.333 cents per share per month is a sustainable payment from NII over the next 12 months. To the extent our taxable earnings continue to exceed NII as well as our regular dividends, we may need to declare additional special dividends to meet our requirement as a tax-efficient regulated investment company to distribute 90% of our taxable income to shareholders.”