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Prospect Capital: 11.3% Yield, Hard to Hate at This Price

Big-dividend (+11.3% yield) BDC Prospect Capital is very hated right now, which is a big part of the reason it is increasing attractive to us from a contrarian income-focused standpoint. PSEC announced quarterly earnings on Wednesday, and exceeded street estimates on NII by a penny ($0.19 vs $0.18), and maintained the monthly dividend at $0.06--which is covered by NII.

New Trades: Income Equity Strategy

The purpose of this post is to provide an update on several new trades in the Blue Harbinger Income Equity strategy. Specifically, we have added several new attractive closed-end funds (CEFs) that offer very healthy yields. We also sold one of our biggest yielding individual stocks, and we provide a rationale for the sale.

Prospect Capital: Is it Still Safe?

Given the very strong price appreciation this year (PSEC was trading at $5.21 in February, and it now trades at $8.10), we review the question "Is it still safe to own Prospect Capital?" We consider the business, the big 12.4% dividend, the dividend coverage ratio, the financial strength, price vs. NAV, and the biggest risk that we believe could potentially drive the price much lower (as we saw in the first two months of this year).

Our 28 Favorite Stocks: July Performance Review & Outlook

In this week’s Blue Harbinger Weekly, we provide a brief performance review and outlook for each of the 28 holdings across our Blue Harbinger strategies. We also provide access to a members-only report on our “Top 3 Covered Call Stocks.” Lastly, you’ll notice we’ve updated performance though the end of July, and all three Blue Harbinger strategies continue to significantly outperform.

Prospect Capital (PSEC) - Thesis

We have initiated a position in Prospect Capital as its price has pulled back 4.5% over the last two weeks. Prospect capital is a Business Development Company (BDC) with a big dividend yield (13.5%), low volatility, and a cost of capital that is lower than its return on capital. We value Prospect with a dividend discount model and some very conservative assumptions.

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