If You Invested $1,000 In Prospect Capital Stock One Year Ago, Here's How Much You'd Have Now

Investors who have owned stocks in the last year have generally experienced some big gains. In fact, the SPDR S&P 500's SPY total return over the last 12 months is 39.1%. But there is no question some big-name stocks performed better than others along the way.

Prospect Capital’s Big Run: One company that has been a strong performer in the past year has been business development company Prospect Capital Corporation PSEC.

Prospect Capital and many other BDC’s are unique investments in that most investors care more about their yields than their stock price gains. Over the past five years, Prospect’s stock price is up just 4.8% overall, but its total return is 84.2% thanks to its 8.6% yield.

Prospect’s yield became even more attractive after the Federal Reserve issued an emergency rate cut in March of 2023. Investors have few places to turn these days to find high-quality yields other than dividend-paying stocks.

By law, BDCs must pay out at least 90% of their taxable profits to investors via dividends, meaning Prospect’s yield is as safe as its underlying business is. The company holds private debt and equity in more than 120 different companies in 39 different industries, providing investors with an extremely diversified source of dividend yield.

At the beginning of 2020, Prospect shares were trading at $6.47. By the beginning of March, the stock was back down to $5.56 as news of the COVID-19 virus spreading in China prompted concerns about a U.S. pandemic.

Prospect shares hit their pandemic low of $3.68 on April 3, a few days after the rest of the market bounced off its March lows. However, Prospect rode the broad market momentum from that point forward, rebounding back to as high as $5.79 by early June.

The prospect rally stalled at that point for several months with the stock bouncing around the $5 level until around mid-November. Fortunately, investors were still getting paid that sizable dividend for their patience.

Related Link: If You Invested $1,000 In Naked Brand Stock One Year Ago, Here's How Much You'd Have Now

Prospect In 2021, Beyond: Prospect broke out to the upside in January 2021, reaching as high as $8.03 in February. The stock has since continued to drive higher, topping out at $9.25 in June.

One surprising driver of the stock could be its popularity among Robinhood users. Robinhood investors are typically younger, less experienced investors that have a passion for higher-risk, speculative investments, such as AMC Entertainment Holdings Inc AMC and Sundial Growers Inc SNDL. However, Prospect is one of the top 100 holdings among Robinhood users, who likely appreciate the stock’s huge dividend and affordable share price.

Prospect investors who bought one year ago and held on until today have gotten much more than a dividend for their trouble. In fact, $1,000 in Prospect stock bought on July 12, 2020 would be worth about $1,957 today, assuming reinvested dividends.

Looking ahead, the one analyst covering the stock is expecting a pullback in the next 12 months. The lone analyst has a $6 price target for Prospect, suggesting 28.6% downside from current levels.