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New trade – Prospect Capital Corporation (PSEC) – building my ROTH

Here is my first trade under a new direction or goal (which was supposed to start next year, but due to completing my previous earlier I could start a new one earlier too). I am excited to be able fully focus on my ROTH IRA investments right now as my last year’s goal has been accomplished.
 
 
 

What is my new goal or direction?

If you remember my previous post announcing that my TD Ameritrade taxable account reached $10,000 value (or balance) which was my goal for 2013 (to recover the account from my reckless gambling in previous years) then I could move to my next money management plan.

What is my money management plan?

My next direction or plan will be to save and deposit all savings and available cash to my ROTH IRA account. I will be contributing to ROTH IRA as long as I max the allowable contributions for ROTH accounts, (currently $5,500 a year). Once I max my ROTH IRA, all additional contributions will be contributed back to my taxable TD account.

So my ROTH will be funded first and when fully funded I will continue saving in my regular taxable account.

Of course, on top of this I still have a priority number one eliminating my debt, then contributing to my 401k, and contributing to new 529 education accounts for our two daughters.

The first trade in the new plan

As you may remember I decided to stop investing in Lending Club due to changes LC did in their trading platform. Those changes were unfavorable to me and limited my freedom and choice trading notes the way I wanted.

As I was liquidating the account (it is still under the process) I transferred majority of money to my daughters accounts (all their money since we used Lending Club as a vehicle for saving for their education) and now I am transferring my wife and my money out of the account and moving them to our ROTH IRA account.

As the cash is slowly arriving, I will continue investing in 1000 dollars increments (so I will not invest everything at once) buying equities.

High yielding dividend stocks

I will be buying high yielding, riskier dividend stocks paying dividends monthly to boost my dividend income. I know that the stocks I will be buying will not fit exactly into dividend growth income strategy, but here is my reasoning:

I believe, and I am hoping that the higher dividend yield stocks will help me generating cash which I can use investing into standard dividend growth stocks. For this purpose I am willing to take a higher risk.

The stocks of my attention are:

Realty Income
Full Circle Capital (FULL)
Gladstone Capital
Mesa Royalty Trust
Prospect Capital Corporation (PSEC)
Main Street Capital

PSEC trade

I have been investing into PSEC for more than 2 years in my ROTH IRA account and Scottrade account. It is somewhat lazy company, so do not expect capital gains, but it pays monthly dividends. The current yield is 11.7% and it trades at around 11 dollars a share. It increased dividends only last year, so it is not a true dividend growth stock. Its payout is however steady and it satisfies my money generating machine. All payments received will be immediately reinvested into dividend growth stocks.

PSEC trades at 10.30 P/E which is in line with the sector (Financial) and industry (Asset Management) and in line with its peers. Net margin is 57% and revenue growth is 57%.

Prospect Capital Corporation is a financial services company that primarily lends to and invests in middle market privately-held companies. The Company is a closed-end investment company. It invests primarily in senior and subordinated debt and equity of companies in need of capital for acquisitions, divestitures, growth, development and recapitalization. The Company works with the management teams or financial sponsors to seek investments with historical cash flows, asset collateral or contracted pro-forma cash flows. Its investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. The Company lends in private equity sponsored transactions; lends directly to companies not owned by private equity firms; control investments in corporate operating companies; control investments in financial companies; invests in structured credit, real estate investments, and investments in syndicated debt.

Tomorrow I will open the following trade:

BTO 87 shares of PSEC at limit 11.45 GTC

I will also start adding data and tables about my trades to “My ROTH IRA holdings page” and to “My trades” page so you will be able to see and follow my trades.

What do you think, is it a good trade? Would you take it?
 
 





4 responses to “New trade – Prospect Capital Corporation (PSEC) – building my ROTH”

  1. I’m also long Prospect Capital and enjoying those monthly dividends :) I hope they continue to cover that dividend with the slight raises too. The good news is they have already announced through half of 2014.

    That may be what is helping stabilize the price up here in the $11.30-$11.50 range lately.

    • Martin says:

      Dividend Swan, thanks for stopping by. I agree on the price. It may drop if the investors start freaking again over the FED’s tapering chimera. We will see.

  2. I am a fan of PSEC as far as Business Development Company’s (BDC) go, but think that $11.45 is a bit too steep of a price to add to my position. I would wait until drops to $10.80 or so.

    BDCs are very interesting companies, and take an inordinate amount of due diligence to ensure coverage of their dividends. As for growing the dividends, PSEC actually has been raising the dividend by fractions of a cent pretty much every month, so technically they have some dividend growth, albeit extremely limited in nature.

    • Martin says:

      Thanks for your input. I was thinking about waiting for the price drop, but the decided to cost average by investing on regular basis, however, I changed my order to a contingency order to trace the stock on its way down actually. thanks for the input!

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