Monthly Income with an 11.3% Yield

With global markets continuing to be unsteady, it’s not easy to find a recommendation that meets the strict criteria I set out for inclusion in Dividend Pro. After all, I am looking for evidence of a sustainable high-income stock with a history of holding up during Mr. Market’s mood swings. With investors throwing out the baby with the bathwater, those are not easy criteria to meet.
 
However, after looking far and wide, I finally uncovered this week’s Dividend Pro recommendation, Prospect Capital Corporation (PSEC)
 
Prospect is a New York City-based business development company. It specializes in late venture, middle market, mature, mezzanine finance, buyouts, re-capitalizations, growth capital, development and bridge transactions. The firm makes secured debt and equity investments in private and microcap public businesses.
 
A couple of things popped out at me when I was researching Prospect.
 
First, Prospect has held up well during the recent market sell-off, and currently is trading above its 50-day moving average. This suggests that the market values the company as a steady player.
 
Second, Prospect Director Eugene S. Stark recently bought shares of the company for a cost per share of $10.85. Why is this important? Insiders only buy shares when they expect them to make money.
 
Finally, Prospect pays out its dividend on a monthly basis. The current annualized dividend is $1.2192/share. That works out to a monthly payment of about 10 cents per share. With a five-year average dividend yield of 12.3%, the company has a history of keeping its yield high. And with a payout ratio of 75.08%, there is little reason to expect this to change. The company’s next ex-dividend date is May 29, 2012.
 
So, buy Prospect Capital Corporation (PSEC) at market today, and place your stop at $9.90.
 
In addition, the market’s pull back during the past week caused us to stop out of Vanguard Natural Resources (VNR) and Hercules Technology Growth Capital (HTGC). As usual, when we stop out of a stock, we sell the related call options as soon as possible. As a result, sell your HTGC call options, if you have not done so already.

Portfolio Update

Seadrill (SDRL) dropped back 3.00% last week. The pain of this was alleviated somewhat by a dividend payout of 0.97 cents per share on May 22. SDRL remains a HOLD.
 
Hospitality Properties Trust (HPT) dropped another 2.54%. The good news is that the June $25.00 call options that you sold are now up 69%. Unless HPT rallies strongly, these options should expire worthless, boosting your overall return. HPT also entered into an agreement to brand 20 hotels under the names Wyndham Hotels and Resorts and Hawthorn Suites. HPT is a HOLD.
 
Global X SuperDividend ETF (SDIV) dropped another 1.26% this past week. This monthly dividend payer remains a HOLD.
 
Two Harbors Investment Corp. (TWO) fell back 1.04%. Mortgage REITs continue to be one of the highest-yielding options available to income-oriented investors. With a dividend yield of 15.8%, TWO is now a HOLD.
 
Hercules Technology Growth Capital (HTGC) dropped 2.75%. The Facebook fiasco put this Silicon Valley business development company (BDC) under pressure. Trading below its 50-day moving average, HTGC is a HOLD.
 
American Capital Agency Corp. (AGNC) continued its relentless run in the face of the global market sell-off and ended the week 1.54% higher. AGNC is a BUY.
 
Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world. He was the Editor of The Global Guru, a free weekly e-newsletter, and also edited the trading services Momentum Trader Alert, which focused on making short-term profits in the hottest markets in the world, and The Alpha Algorithm, which was designed specifically to deliver big, fast triple-digit winners, month after month. He was also the editor of Smart Money Masters, a monthly service focused on longer term investments recommended by the brightest minds in the business. Mr. Vardy has been a regular commentator on CNN International and the Fox Business Network. He has also published articles in The New Republic, The World and I, and The Baker & McKenzie Legal Review. The Global Guru/Nicholas Vardy has been cited in The Wall Street Journal, Newsweek, Fox Business News, CBS MarketWatch, Yahoo! Finance, and MSN Money Central. Mr. Vardy graduated from Stanford with a B.A. — with honors and distinction — in both Economics and History, and he also earned an M.A in Modern European Intellectual History. After winning a Fulbright Scholarship, he earned a J.D. degree at Harvard Law School where he was an editor of the Harvard International Law Journal. When not uncovering investment opportunities for his subscribers and investors, Mr. Vardy is a keep-fit enthusiast and an avid student of classical music.  

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