If you had invested $1,000 in Prospect Capital Stock a year ago, here’s how much you would have now

Investors who have held stocks over the past year have generally seen strong gains. In fact, the SPDR S&P 500 TO SPY the total return over the last 12 months is 39.1%. But there’s no doubt that some big-name stocks have performed better than others along the way.

Prospect Capital’s Great Race: A company that has been very successful over the past year has been the business development company Prospect Capital Corporation PSEC.

Prospect Capital and many other BDCs are unique investments in that most investors care more about their returns than their stock price gains. Over the past five years, Prospect’s stock price has only risen 4.8% overall, but its total return is 84.2% thanks to its 8.6% return.

Prospect’s yield became even more attractive after the Federal Reserve issued an emergency rate cut in March 2023. Investors have little recourse these days to find high-quality yields other than high-paying stocks. dividends.

By law, BDCs must pay out at least 90% of their taxable profits to investors as dividends, which means Prospect’s return is as safe as its underlying business. The company holds private debt and equity in more than 120 different companies in 39 different industries, providing investors with an extremely diversified source of dividend yield.

At the start of 2020, Prospect shares were trading at $6.47. By early March, the stock had fallen back to $5.56 as news of the spread of the COVID-19 virus in China sparked concerns of a US pandemic.

Prospect shares hit their pandemic low of $3.68 on April 3, days after the rest of the market rebounded from its March lows. However, Prospect took advantage of the general market momentum from then on, bouncing up to $5.79 in early June.

The outlook rally stalled at this point for several months, with the stock bouncing around the $5 level until around mid-November. Fortunately, investors were still receiving this important dividend for their patience.

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Prospect In 2021, Beyond: Prospect broke out higher in January 2021, reaching as high as $8.03 in February. Since then, the stock has continued to climb, reaching $9.25 in June.

A surprising driver of the stock might be its popularity among Robinhood users. Robinhood investors are generally younger, less experienced investors who have a passion for high-risk, speculative investments, such as AMC Entertainment Holdings Inc. CMA and Sundial Growers Inc. SNDL. However, Prospect is one of the top 100 holdings among Robinhood users, who likely appreciate the stock’s huge dividend and affordable stock price.

Potential investors who bought a year ago and held until today got more than a dividend for their trouble. In fact, $1,000 of Prospect stock purchased on July 12, 2020 would be worth about $1,957 today, assuming reinvested dividends.

Looking ahead, the only analyst covering the stock expects a pullback over the next 12 months. The lone analyst has a price target of $6 for Prospect, suggesting a decline of 28.6% from current levels.

Sallie R. Loera