PSEC Stock: Dividend Cut to $0.035, NAV $5.71, PIK, Preferred

What PSEC is, and which filings this page reads

Prospect Capital is an externally managed business development company (BDC): Prospect Capital Management L.P. is the adviser, and the 10-K says Mr. Barry “currently controls” it. Its fiscal year ends June 30, so the latest annual report is the Form 10-K filed August 20, 2026 (accession 0001287032-26-000269), and the next quarterly report, for September 30, 2026, was not on EDGAR as of October 15, 2026. At June 30, 2026 it held 91 portfolio companies, 72.5% of the portfolio at cost in first lien debt, and a floating-rate share of 76.0% of interest-bearing assets (earnings release, August 20, 2026). For the whole listed universe see our list of BDC stocks; for how PSEC's non-accruals and PIK compare with 35 other BDCs see the 36-BDC census.

Two premises we checked. First, the non-traded sibling is not called Prospect Flexible Income Fund any more: SEC records show it as Prospect Floating Rate and Alternative Income Fund, Inc. (PFLOAT, CIK 1521945). Its Class A NAV per share was $3.89 at June 30, 2026 against $4.50 a year earlier, with $37.1 million of net assets (Form 10-K, accession 0001521945-26-000095): small next to PSEC's $2.93 billion of common net assets. Second, PSEC is no longer a CLO equity story: subordinated structured notes were 0.0% of the portfolio at cost at June 30, 2026 against 0.7% a year earlier, and interest from structured credit securities was zero in fiscal 2026, $14.0 million in 2025 and $35.7 million in 2024 (10-K). For a Prospect-adviser vehicle that still holds CLO equity, see our page on Priority Income Fund.

Nine quarters: NII, preferred dividends, distributions and NAV

Each row is from the earnings release of the quarter (an 8-K exhibit); the columns after NII are our arithmetic. The point of the table is the third column: Prospect deducts its preferred stock dividends after NII, not before it, so NII per share overstates the cash left for common holders.

Three readings. First, the one quarter above 100% outside June 2024 is December 2025, when NII rose to $90.9 million from $79.4 million: interest was only 84.7% of investment income that quarter against 96.7% in September, so dividend and other income did the lifting (earnings releases). Second, from June 2024 to June 2026 the quarterly common distribution fell from $75.6 million to $58.0 million, but NII after preferred fell faster, from $76.9 million to $51.3 million, so coverage did not recover. Third, the reported NII per share fell from $0.25 to $0.15 over the same eight quarters, a 40% drop, while per-share distributions fell from $0.18 to $0.115, 36%.

Fiscal 2026 in one line. NII $326.4 million, less $106.6 million of preferred dividends, is $219.7 million; common distributions were $249.7 million; the shortfall of $30.0 million is 12.0% of distributions (our arithmetic). The 10-K says the same in per-share terms: distributions to common and preferred holders of $356.3 million, or $0.74 a share, “exceeded” NII of $326.4 million, or $0.68, a net decrease of $0.06 a share.

The dividend: three rates in two years, and what the next one needs

The 10-K lists every declaration. Monthly common distributions were $0.060 for the record dates through October 29, 2024, $0.045 from November 26, 2024 through April 28, 2026, and $0.035 from May 27, 2026; on August 20, 2026 the board declared $0.035 for September and October (earnings release, accession 0001287032-26-000270). That is a 41.7% cut from $0.06 to $0.035 (our arithmetic), or $0.42 a year per share. At the $2.20 closing price of September 21, 2026 printed in the proxy statement, $0.42 is 19.1% of the price (our arithmetic); the same price is 38.5% of NAV, a 61.5% discount. These are the filings' numbers, not a forecast of what the stock will do.

Whether $0.035 is covered depends on the share count, which has been rising: 455.9 million shares at June 30, 2025, 512.7 million at June 30, 2026 and 524.8 million on August 19, 2026 (10-K cover), up 15.1% in just over thirteen months (our arithmetic). On 524.8 million shares the quarterly cost of $0.035 a month is $55.1 million (our arithmetic), against NII after preferred of $51.3 million in the June 2026 quarter: 93.0% coverage, before any change in earnings and before further shares are issued through the dividend reinvestment plan, which prices them at 95% of the market price. The 10-K itself warns that “we cannot assure you” the company will achieve results that allow a specified level of distributions.

Why NAV fell $0.85 in a year: the dilution line

Prospect's NAV per share is the most direct place to see what happened to a holder. The June 2026 release bridges the fiscal year from $6.56 to $5.71 (per basic weighted average share, so the lines do not foot exactly):

The dilution line is the one most readers miss. The 10-K explains that net assets rose $27.5 million from shares issued “at the then-current market prices” through dividend reinvestment and $126.7 million from preferred stock converted to common, and that “these combined increases in total net asset value resulted in dilution of $0.41” per share. The mechanism is the 5.50% and 6.50% preferred: holders can convert into common at a price based on the five-day average market price of the common, which has been far under NAV (the closing price was $2.59 on December 31, 2025 against a NAV of $6.21). In fiscal 2026, 5,260,505 shares of those two series were converted (10-K). In the June quarter alone the line cost $0.17, as much as the quarter's net realized and unrealized losses ($0.18).

On July 7, 2026 holders also renewed the authority to sell common stock below NAV for 12 months, capped at 25% of shares outstanding on any sale: 277.6 million votes for and 63.9 million against, which after removing 134.1 million affiliated shares is 146.0 million for against 63.9 million against (Form 8-K, accession 0001287032-26-000224). The company did not repurchase common stock in fiscal 2026 or 2025 and has $65.9 million of capacity left under its repurchase program.

PIK: how much of the income is not cash

Prospect reports PIK interest (interest added to the loan balance instead of paid in cash) as its own line, and the cash flow statement adds PIK dividends. Two measures, both from the 10-K (our arithmetic for the shares):

PIK has come down in dollars and as a share, which is good news, but it has come down with total income, and $75.6 million of fiscal 2026 income is interest and dividends that were never received in cash, 23.2% of NII before preferred dividends (our arithmetic). The 10-K's accounting policy says capitalized PIK is “subject to the fair value estimates associated with their related investments,” and that when PIK “is not fully expected to be realized” the investment goes on non-accrual and accrued, uncapitalized interest is reversed. The adviser's fee is charged on pre-incentive fee NII that “includes” income “that we have not yet received in cash” on deferred-interest investments such as PIK.

Quarterly PIK interest was $15.4 million (September 2025), $15.1 million, $17.1 million and $18.2 million (June 2026), so the latest quarter is the highest of the year at 11.7% of that quarter's $155.8 million of investment income (our arithmetic). The four quarterly figures add to $65.8 million against $66.1 million in the annual statement; the $0.3 million difference is in the filings and we did not find an explanation.

Non-accruals: 4.7% at cost, 14 cents on the dollar

The 10-K states the dollars: at June 30, 2026 loans on non-accrual had a cost basis of $298.2 million and a fair value of $42.5 million, against $273.7 million and $23.7 million a year earlier. The company's headline ratio, 0.7% of total assets at fair value, is therefore a statement about marks. At cost the loans are 4.7% of the $6.32 billion portfolio (our arithmetic), and the earnings release for June 2025 gave 4.0% of total assets at cost, 4.7% in March 2025 and 2.7% in June 2024. The foregone interest shows in the yield: the average rate earned on all interest-bearing investments was 10.21% in fiscal 2026 against 10.74% in 2025, while on performing loans it was 11.88% against 11.89%.

The schedule of investments marks non-accrual loans with a footnote. Six borrowers carry it at June 30, 2026:

The flagged lines add to $298.2 million of cost and $42.5 million of fair value, the same two figures as the note in the 10-K (our arithmetic from the schedule, line by line). Credit.com and Aventiv are the two largest by cost at $102.6 million and $59.1 million. First Brands carries five flagged lines, including debtor-in-possession (DIP) term loans dated October 2, 2025; the schedule marks the two DIP loans at $1.1 million and $0.06 million against $5.8 million and $17.5 million of cost. Strategic Chemical Solutions, formerly USES Corp., is a controlled company carried at $9.4 million in total against $22.0 million of cost; its flagged loans have principal of $239.6 million but zero cost basis.

Preferred stock: $1.71 billion that ranks ahead of common holders

Prospect funds itself with an unusual layer: perpetual preferred stock sold to retail investors through a dealer manager, in several series with $25 liquidation preference, plus one NYSE-listed series. It is not debt, so it does not reduce the 339.4% asset coverage Prospect reports on its borrowings; counting preferred as senior securities, coverage was 177.6% (10-K). The 10-K also classifies the preferred as temporary equity, between liabilities and net assets. The table gives each class at liquidation preference at June 30, 2026 (senior securities table of the 10-K; the total is our arithmetic):

Preferred dividends were $106.6 million in fiscal 2026, which is 32.7% of NII and 6.2% of the year-end liquidation preference (our arithmetic). The company issued 3,099,678 preferred shares in the year for $70.4 million of net proceeds, while 5,260,505 shares of the 5.50% and 6.50% series were converted into common and 447,732 shares of the floating and 7.50% series were redeemed for cash. The listed Series A had an average market value of $16.35 per $25 unit in fiscal 2026 (10-K senior securities table): the market has not priced it at par. The July 16, 2026 Form 15 for four preferred series (AA1, MM1, AA2, MM2) lists zero holders of record for each; it ends reporting duties for series that no longer have holders, not for the listed preferred or the common stock.

Two features matter for common holders. First, the adviser's incentive fee is computed on pre-incentive fee NII after “dividends paid on any issued and outstanding preferred stock” (10-K), which is a point in favour of common holders. Second, the 5.50% and 6.50% conversion feature turns preferred into common at market, not NAV, which is the dilution line above. Holders of the preferred alone vote at the annual meeting of December 17, 2026, where one Class I director is on the ballot; there are no matters for common holders (proxy statement of September 22, 2026).

Debt: laddered, unsecured, and a $263 million redemption in November

At June 30, 2026 debt principal was $1,878.6 million: $562.3 million drawn on the revolver, $701.4 million of public notes (including the Israeli-market 5.50% 2030 notes) and $614.9 million of Prospect Capital InterNotes, the retail notes sold in small pieces. The earnings release counts $4.24 billion of unencumbered assets, 65.8% of total assets, and 83.7% of debt plus preferred as unsecured or perpetual preferred. The weighted average cost of unsecured debt was 4.78%, against 11.88% earned on performing loans.

On October 14, 2026 Prospect filed a Form N-23C-2 to redeem all $263.22 million of its 3.364% notes on or about November 13, 2026. The revolver is a $2.1 billion facility with 48 lenders priced at one-month SOFR plus 205 basis points; Valley Electric's July 1, 2026 sale (consideration about $328 million) would have cut the June 30 draw to $322.7 million on a pro forma basis (earnings release). The company's October 30, 2025 issue of about $167 million of 5.5% notes due 2030, sold to non-U.S. investors and listed on the Tel Aviv Stock Exchange (Form 8-K, accession 0001287032-25-000332) replaced cheaper debt, as the 10-K notes, yet interest and credit facility expense fell from $148.3 million to $129.9 million while the revolver balance went from $856.3 million to $562.3 million.

Where the common NAV sits: two holdings are 70% of it

Prospect's investments are 216.5% of common net assets because of its leverage and preferred stock, so its largest positions are best read against the $2.93 billion of common net assets, which is what the schedule of investments does in its last column. The six largest at June 30, 2026 (10-K, fair value; the percentage is of net assets applicable to common shares):

The four largest positions are $2,676.8 million, 91.4% of common net assets, and NPRC with First Tower are 69.7% (our arithmetic). All control investments (companies where Prospect owns 25% or more of the votes) are $3,644.3 million at fair value against $3,367.6 million of cost, 124.4% of common net assets; the $276.7 million of unrealized gain on them includes a $185 million gain on NPRC, which the company said was $229 million at March 31, 2026 (earnings releases): $44 million lower in a quarter. Valley Electric's sale is the one recent data point: total consideration of about $328 million, of which the company expects about $281 million of net exit proceeds, against a $293.9 million mark at June 30; it reports a 20.5% realized gross IRR since 2012 (earnings release).

Real estate. NPRC holds 44 multi-family properties, two student housing, four senior living and two commercial properties (10-K note). The release counts 52 remaining properties, a 5.3% income yield to Prospect for the June quarter and six properties sold in fiscal 2026. NPRC is 14.2% of the portfolio at cost, but 17.1% at fair value, or $1,081.6 million of $6,342.6 million (our arithmetic). In fiscal 2026 Prospect lent NPRC another $47.6 million and received $73.3 million back.

Consumer finance. The industry is 18.1% of the portfolio at fair value ($1,149.2 million) against 12.0% at cost; First Tower is most of it. Software, the sector many BDC investors worry about, is 2.3% of Prospect's portfolio at fair value against a 22% average across BDCs in an Oppenheimer report the company cites (earnings release). The same release compares its middle-market borrowers with a KBRA reference: net leverage of 6.1x against 4.9x and cash interest coverage of 160% against 223%, worse on both counts, in the company's own table.

CLOs. The structured credit book that produced $35.7 million of interest in fiscal 2024 is down to residual interests with a fair value of $2.8 million at June 30, 2026, against $35.0 million a year earlier (10-K).

What the adviser is paid

Prospect Capital Management earns a base management fee of 2.00% of total assets, paid quarterly, and a two-part incentive fee: an income fee with a 7.00% annualized hurdle on net assets, 100% catch-up up to 8.75% and 20% above it, and a 20% capital gains fee (10-K). In fiscal 2026 the base fee was $130.9 million and the income incentive fee $26.5 million, together $157.4 million, 24.6% of investment income (our arithmetic), against $186.5 million in fiscal 2025. Because the base fee is charged on total assets, including assets bought with preferred stock and debt, it falls only as the portfolio shrinks: total assets were $6.45 billion at June 30, 2026 against $7.86 billion at June 30, 2024. Prospect Administration, an affiliate, is paid $22.1 million a year for overhead allocation, offset in fiscal 2026 by $17.1 million of settlement proceeds. Our OBDC and ARCC pages show the same fee tests at other managers.

What happened recently, in dates

The September 2026 quarter's 10-Q is the next data point. The 10-Q for the September 2025 quarter was filed on November 6, 2025 (accession 0001287032-25-000339); as of October 15, 2026 there was no equivalent filing.

How PSEC compares with the non-traded vehicles

A holder of PSEC can sell on any trading day, so a NAV decline and a missed dividend show up in the price, which was 38.5% of NAV on September 21, 2026. A holder of a non-traded fund sees the same credit stress as NAV marks and tender proration, with no daily price. Prospect's own non-traded vehicle, Prospect Floating Rate and Alternative Income Fund, saw its Class A NAV fall 13.6% in the same fiscal year (from $4.50 to $3.89, our arithmetic) against 13.0% at PSEC. Other comparisons are in our non-traded BDC list, the FS KKR page, which also covers a dividend cut and non-accruals, and the primer what is a BDC.

What a holder or reader can do with this

This is a checklist built from the filings, not a recommendation.

• Read coverage after preferred, not NII per share. The reported $0.15 NII for the June quarter is $0.10 after the $0.05 of preferred dividends. The distribution cost was $0.115 that quarter and is $0.105 a quarter now.
• Track the share count. It rose 12.5% in fiscal 2026 and 15.1% by August 19, 2026. Each issuance below NAV lowers NAV per share; the 10-K puts the year's cost at $0.41.
• Check non-accruals at cost and mark. $298.2 million at cost is carried at $42.5 million; a recovery on First Brands, Aventiv or Credit.com would show in NAV, while the fair-value percentage is already low because most of the cost is written down.
• If you hold the preferred, the filings show the listed series trading well under $25, the conversion mechanics of the 5.50% and 6.50% series, and that preferred is junior to $1.88 billion of debt. The rate you are paid is in the table above.
• Watch the November 2026 filings. The 3.364% notes are redeemed on or about November 13; the September quarter's NAV and non-accruals follow.
• Taxes. Distributions are characterized at year end; see our 1099-DIV timeline. The earnings release says the tax character of fiscal 2026 distributions will not be final until the return for the tax year ending August 31, 2026 is filed.

FAQ

All figures are from Prospect Capital Corporation's SEC filings (CIK 1287032) read on EDGAR on October 15, 2026: the Forms 10-K for the years ended June 30, 2026 and 2025 (accessions 0001287032-26-000269 and 0001287032-25-000232); the earnings releases (Exhibit 99.1 to the 8-Ks of August 27 and November 6, 2025, and February 9, May 7 and August 20, 2026, accessions 0001287032-25-000235, -25-000342, -26-000047, -26-000165 and -26-000270); the 8-Ks of October 31, 2025, February 10, May 8 and July 7, 2026; the Form 15-12G of July 16, 2026; the Form N-23C-2 of October 14, 2026; the proxy statement of September 22, 2026; and the 10-K of Prospect Floating Rate and Alternative Income Fund (accession 0001521945-26-000095). Coverage ratios, percentages, sums of schedule lines and per-share effects are our arithmetic. Share prices are those printed in the filings, not current quotes. This is analysis of public documents, not investment, legal or tax advice.