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Strategies & Market Trends : Dividend investing for retirement -- Ignore unavailable to you. Want to Upgrade?

To: sm1th who wrote (24111)	12/26/2015 5:33:31 PM
From: Max Fletcher	1 Recommendation Recommended By geoffrey Wren Read Replies (1) \| Respond to of 34328

FWIW here is an abbreviated Wells Fargo take on PSEC. ? Our View. PSEC continues to offer an attract valuation, currently trading for 0.72x NAV, as well as taking a more shareholder friendly approach with the 31.5MM of share repurchases in the quarter, yet we remain sidelined given PSEC’s recent ratings downgrade and questions regarding the viability of some of their investment strategies (securitization of online loans). PSEC has made an effort to take advantage of their lower valuation by repurchasing 31.5MM shares in the quarter, providing an estimated NAV accretion of $0.04 per share. However in the quarter PSEC was downgraded by S&P to BBB- from BBB, placing specific leverage and asset coverage levels that could trigger a review for further downgrade. This could limit PSEC in the flexibility they have in operating their company while potentially increasing the cost of borrowing. Furthermore, we have concerns about the viability and longevity of their online loans initiatives and the potential returns via securitizations. We are reducing our 2016 estimate from $1.06 to $0.95 and establishing our 2017 estimates of $0.95. ? Downgrade by S&P may increase borrowing costs and inhibit ability to engage in meaningful buybacks. Valuation Range: $8.00 to $8.50 Based on PSEC's Quartile 4 standing we estimate shares should trade between a 12.5% and 13.0% earnings yield on FY2016 NOI estimates. Risks to our valuation range include a significant deterioration in credit quality, dilutive equity issuance, or an extended period of capital markets illiquidity. We rate PSEC Market Perform. We believe that the outsized yield on shares accurately reflects a higher risk portfolio.

To: sm1th who wrote (24111)	12/26/2015 8:35:31 PM
From: Elroy	Read Replies (1) \| Respond to of 34328

I don't follow this company, but there is always a reason a company needs to pay 14% to attract capital. BDCs need to payout some percentage of their taxable income (either 96% or 90%, can't quite recall) in order to qualify for the zero tax benefit they receive (so the shareholders pay taxes on distributions, but the BDC pays zero tax on its income). So the reason PSEC is paying out 14% is because PSEC's stock is low. PSEC the company is earning about $1.00 per year, so they will pay out $1.00 whether the PSEC shares are $7 (and thus yielding 14%) or the PSEC shares are $20 (and thus yielding 5%). Usually in involves a high risk of bankruptcy. If it were truly worth $11.00 that is where it would be trading. This idea is why I'm interested to read the bear's explanation for PSEC's share price. For me, $10.17 worth of stuff that pays out $1.00 per year is worth MORE than $10.17. $10.17 cash pays me nothing, so logically $10.17 in PSEC that pays me $1.00 per year is worth more than the cash. Yet the market says PSEC with perhaps $10.17 of stuff is worth only $7.00 or so. I'm curious why others think it is not a good investment.