Prospect Capital Corporation (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.
|
Insider |
Position |
Date |
Buy/Sell |
Shares |
Trade Price ($) |
Cost ($1000) |
|
Eliasek M Grier |
COO |
12/9/2014 |
Buy |
25,000 |
$8.31 |
208 |
|
Brian H Oswald |
CFO |
12/9/2014 |
Buy |
63,500 |
$8.35 |
530 |
|
John F Barry |
CEO |
12/8/2014 |
Buy |
132,200 |
$8.46 |
1,118 |
|
Brian H Oswald |
CFO |
12/2/2014 |
Buy |
162,500 |
$9.12 |
1,482 |
|
Eliasek M Grier |
COO |
12/2/2014 |
Buy |
50,000 |
$9.10 |
455 |
|
John F Barry |
CEO |
12/1/2014 |
Buy |
115,000 |
$9.08 |
1,044 |
|
Eliasek M Grier |
COO |
11/10/2014 |
Buy |
5,000 |
$9.56 |
48 |
|
Eugene S Stark |
Director |
11/10/2014 |
Buy |
1,512 |
$9.40 |
14 |
|
John F Barry |
CEO |
11/10/2014 |
Buy |
110,000 |
$9.57 |
1,053 |
|
Eliasek M Grier |
COO |
9/16/2014 |
Buy |
5,000 |
$10.10 |
51 |
|
John F Barry |
CEO |
9/16/2014 |
Buy |
100,000 |
$10.17 |
1,017 |
|
Eliasek M Grier |
COO |
8/29/2014 |
Buy |
20,000 |
$10.26 |
205 |
|
Eugene S Stark |
Director |
8/28/2014 |
Buy |
4,000 |
$10.32 |
41 |
|
Brian H Oswald |
CFO |
8/27/2014 |
Buy |
27,300 |
$10.40 |
284 |
|
John F Barry |
CEO |
6/13/2014 |
Buy |
100,000 |
$10.37 |
1,037 |
|
John F Barry |
CEO |
6/12/2014 |
Buy |
100,000 |
$10.33 |
1,033 |
|
Eugene S Stark |
Director |
6/12/2014 |
Buy |
1,000 |
$10.27 |
10 |
|
Brian H Oswald |
CFO |
6/12/2014 |
Buy |
30,000 |
$10.25 |
308 |
|
Eliasek M Grier |
COO |
6/12/2014 |
Buy |
24,000 |
$10.28 |
247 |
|
John F Barry |
CEO |
3/20/2014 |
Buy |
100,000 |
$10.86 |
1,086 |
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 at market timing; 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.
