Not everyone wants higher interest rates. For homeowners, rising rates could translate to higher mortgage payments. For corporations, higher interest rates would increase their debt repayment burden. However, it’s not all going to be bad news, because there are strategies for investors to capitalize on rising interest rates. Since we are Income Investors, I’m going to show you a relatively safe one. With this play, there’s no need to use complicated financial derivatives. And you get paid a double-digit income stream just to be part of the game.
Sounds too good to be true? Well, let me explain...
In order to take profit from higher interest rates, you need to keep track of two simple variables: revenue and expenses. If you can increase your revenue when interest rates increase while keeping your expenses fixed, chances are you’ll see more profits on the bottom line. As it turns out, one company is well positioned to do exactly that: Prospect Capital Corporation (NASDAQ:PSEC). Headquartered in New York City, Prospect Capital is a business development company, or BDC. Its main business is to invest in middle-market companies in the U.S., most through debt financing. In other words, PSEC lends out money and collect interest payments.
Source: Income Investors
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