Prospect Capital Corporation (NASDAQ:PSEC) got off to a rough start this month with a dividend cut. Prospect Capital cut its dividend to 8.33 cents per month from 11.1 cents. But even after the reduction, PSEC sports a dividend yield of 12.1%. Not bad.
A 12% dividend is nothing to take lightly. Given that U.S. stocks are priced to deliver flat returns for the next 7-10 years, it’s never been more important to get paid in cold, hard cash.
But if you really want to know why I’m on Prospect Capital, take a look at the following chart of recent insider buys:
In the month of December alone, the Prospect Capital’s chief executive officer, chief financial officer and chief financial officer bought a combined 548,200 shares for over $4.8 million. Clearly, none were particularly upset about the dividend cut.
The December buying, while a fantastic vote of confidence following Prospect Capital’s dividend cut, was by no means an isolated event. Year to date, company insiders have plowed a combined $11.2 million dollars into Prospect Capital’s shares. And I should emphasize that these are open-market purchases made with the insiders’ own money, not executive stock options.
As an investor, I like to see management with skin in the game. A CEO that plows millions of his own dollars into his company is a CEO that is dedicated to the cause. And while this alone does not automatically make a stock a buy, it certainly gives me a lot more confidence to ride out any short-term volatility.
I recommend you follow the insiders and accumulate shares of Prospect Capital. The company’s insiders are not particularly good market timers; some of their recent buys are down a good 20% from their purchase price. But I expect this to be a wildly profitable investment over a 3-5-year time horizon. I expect investors to double their money in Prospect Capital in the next five years, while they might break even at best in the broader markets.