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

To: rnsmth who wrote (24131)	12/26/2015 10:51:30 PM
From: Elroy	Read Replies (1) \| Respond to of 34328

Credit rating. Check that out. Yeah, I think PSEC is BBB-, something like that. You do realize PSEC is mainly a company that makes high yield middle market loans, right? At any point when they get paid back a loan they could decide to keep the cash rather than make a new loan, and therefore increase their cash position, and presumably their credit rating. I mean, if it were really important (they rating) they could easily push it higher. Just keep cash paid make to them and not make a new loan. Voila, BBB- becomes BBB or perhaps BBB+, with perhaps a little bit lower income each quarter because more of their available cash is not working generating interest income. This problem seems so easy to manage for them that it doesn't seem a reason to make a Buy or Sell decision to me. My main concern is safety of the dividend and of dividend increases. From what little I know PSEC's dividend seems fairly safe, and the next move (I think) is an increase. They earned 26 cents in the most recent quarter. If they get that up to 27 cents for a few quarters, I wouldn't be surprised to see them increase the dividend from 8.3 cents per month to 9 cents per month. Why not? I'm guessing you (like most investors) are judging the riskiness of the company from the yield. High yield = high risk, right? So.....if PSEC stock were !! and the yield were thus 9% you might be more inclined to buy it, but since the share price is low (and the dividend is the same, so the yield is therefore high) you're saying it's too risky. Many investors think this way, and it's probably a good idea. But I have yet to read the good logical explanation for why PSEC trades at its 14% yield rather than (an also super risky) 9% yield, which seems risky enough given the underlying business. A 9% yield would be an $11 share price..... Look up Bob Wells' article on non-financial dividend cutters during the Great Recession That's OK, PSEC certainly has more risk of a dividend cut than an actual company, like JNJ or Coke or whatever. PSEC is basically a big lending company, so it can easily go to hell if the economy turns bad or if they make a few bad loans. I don't mean to compare PSEC to a 2.5% yielding blue chip, that's not the comparison. I guess the comparison is to other stocks which yield 10% or more. For a 10% yielding stock, PSEC seems pretty good. By no means guaranteed to pay for decades, but pretty good nevertheless.