Shares of Prospect Capital (NasdaqGS: PSEC), the high-yielding business development company, are off nearly 9% Monday on volume that is more than four and a half times the daily average after the company said it “has suspended at-the-market equity issuances (the “ATM Program”) for the indefinite future” and lowered its monthly dividend.
According to a statement, Prospect’s dividends for February, March and April will be 8.333 cents per share, down from the 11.1 cents per share the company had been paying every month since August 2014.
News of Prospect’s reduced dividend sent the Market Vectors BDC Income ETF (NYSEArca: BIZD) lower by nearly 2.2%, owing to the ETF’s 7.8% weight to Prospect. That makes Prospect BIZD’s third largest holding. The E-TRACS Wells Fargo Business Development Index ETN (NYSEArca: BDCS) features a 9.9% weight to Prospect, explaining the ETN’s 2.1% Monday decline, a drop that has arrived on more than double the average daily volume.
Although investors have continued rushing into income-generating assets and ETFs this year, business development funds have faced headwinds, including weakness in small-caps and concerns about the strength of the senior secured loan market.
Earlier this year, BIZD and BDCS slumped after S&P Dow Jones Indices decided to remove BDCs from its U.S. indices. Less than a month after that announcement from S&P Dow Jones Indices, announced it would also remove BDCs from its indices. [BDC ETFs Fall After Russell Decision]
BDCs are high-dividend-paying firms that focus on lending senior secured loans to midsized companies. These companies act like banks to other companies, but the BDCs are not structured as banks since they pay out at least 90% of income to investors through dividends.