Prospect Capital: The Insiders Are Backing Up The Truck
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 |
|---|---|---|---|---|---|---|
| Eliasek M Grier | COO | 12/9/2014 | Buy | 25,000 | $8.31 | $207,800 |
| Brian H Oswald | CFO | 12/9/2014 | Buy | 63,500 | $8.35 | $530,200 |
| John F Barry | CEO | 12/8/2014 | Buy | 132,200 | $8.46 | $1,118,400 |
| Brian H Oswald | CFO | 12/2/2014 | Buy | 162,500 | $9.12 | $1,482,000 |
| Eliasek M Grier | COO | 12/2/2014 | Buy | 50,000 | $9.10 | $455,000 |
| John F Barry | CEO | 12/1/2014 | Buy | 115,000 | $9.08 | $1,044,200 |
| Eliasek M Grier | COO | 11/10/2014 | Buy | 5,000 | $9.56 | $47,800 |
| Eugene S Stark | Director | 11/10/2014 | Buy | 1,512 | $9.40 | $14,200 |
| John F Barry | CEO | 11/10/2014 | Buy | 110,000 | $9.57 | $1,052,700 |
| Eliasek M Grier | COO | 9/16/2014 | Buy | 5,000 | $10.10 | $50,500 |
| John F Barry | CEO | 9/16/2014 | Buy | 100,000 | $10.17 | $1,017,000 |
| Eliasek M Grier | COO | 8/29/2014 | Buy | 20,000 | $10.26 | $205,200 |
| Eugene S Stark | Director | 8/28/2014 | Buy | 4,000 | $10.32 | $41.300 |
| Brian H Oswald | CFO | 8/27/2014 | Buy | 27,300 | $10.40 | $283,900 |
| John F Barry | CEO | 6/13/2014 | Buy | 100,000 | $10.37 | $1,037,000 |
| John F Barry | CEO | 6/12/2014 | Buy | 100,000 | $10.33 | $1,033,000 |
| Eugene S Stark | Director | 6/12/2014 | Buy | 1,000 | $10.27 | $10,300 |
| Brian H Oswald | CFO | 6/12/2014 | Buy | 30,000 | $10.25 | $307,500 |
| Eliasek M Grier | COO | 6/12/2014 | Buy | 24.000 | $10.28 | $246,700 |
| John F Barry | CEO | 3/20/2014 | Buy | 100,000 | $10.86 | $1,086,000 |
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.
Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.
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