Without a doubt, I get more requests to analyze the dividend safety of Prospect Capital Corp. (Nasdaq: PSEC) than I do for any other stock.

The monthly dividend that yields 12.5% annually is a big reason for that.

But should shareholders expect to continue to receive that $0.083 per share dividend every month?

The first things that jump out at me are two dividend cuts, one in 2010 and another in 2015. Prospect Capital is a business development company (BDC) that invests in debt and equity across a wide range of businesses and industries. It has more than $6 billion in assets and has funded more than 300 businesses.

To me, there is nothing worse for a dividend payer than a management team that cuts the dividend. And if the dividend has been reduced more than once, that is a strong signal that management won’t hesitate to do it again.

So those are two big strikes against it – even before we look at the fundamentals.

The financials aren’t too bad. In 2016, the company generated $590 million in net interest income (NII), the best measure of cash flow for a BDC. During the year, it paid out $336 million for a very manageable payout ratio of 57%.

The payout ratio is the percentage of earnings (I use cash flow) that is paid out in dividends.

This year, the payout ratio is expected to climb to 66%, which is still within my comfort zone of 75% or lower.

However, the payout ratio is going higher, not because of a larger dividend payout, but because NII is forecast to slide 14%.

I penalize a company that makes less money than it did the year before. It’s not a given that a company will be able to sustain its dividend if cash flow is falling.

So while Prospect Capital can afford its dividend today, its history of cutting dividends and its NII trajectory are not inspiring confidence that it will be able to sustain the dividend in the future.

I wish I had better news, since so many of you like the stock. But the dividend cannot be considered safe.

Dividend Safety Rating: F