Another aspect that sets Prospect above many of the other stocks in the sector is its ability to avoid major capital losses and increase its dividends in the years since the 2008 financial collapse. None of the company's loans made during that period can be placed in the "nonperforming" category, as there are no instances of loans that are not generating the agree-upon interest rate due to nonpayment. This is not a claim that can be made by some of the company's main competitors. Valuations are also important, given the fact that stocks like Main Street Capital are now trading at levels that are 1.7 times the company's tangible book value -- relatively high for a business development company.
For investors looking to gain exposure to the attractive dividends that can be found in BDCs, there are many solid opportunities available. But, as always, it is important to watch the factors supporting portfolio strength and the fundamental outlook, rather than relying on yields alone. Prospect Capital does look to offer solid potential in both of these areas, however, and growth in coming quarters should be a strong indication of where the company is headed long-term.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.