Main Street Capital (NYSE: MAIN) is a popular business development company, or BDC, that lends to and invests in businesses that are cash flow positive and generate at least $10 million in revenue per year.
It currently has 191 companies in its portfolio and pays a 5.7% dividend yield.
The stock has become a favorite of income investors thanks to its juicy yield, its monthly payouts, and the fact that it has increased its annual dividend every year since 2011.
But will Main Street be good to Wall Street and maintain its payout?
To determine whether a BDC can afford its dividend, we look at its net investment income (NII). This is the money it generates from lending to and investing in other businesses, minus related expenses.
Main Street's NII has been soaring.
In 2023, the company generated $339 million in NII, a 38% increase year over year and an 85% increase over 2021's total.
Last year, Main Street Capital paid out $272 million for a payout ratio of 80% of its net investment income. By law, BDCs must return at least 90% of their earnings to shareholders, so it's not unusual for them to pay out nearly all of their net investment income. (Keep in mind that net investment income is not the same as earnings.)
A payout ratio of 80% is comfortably below my threshold of 100% for BDCs, but as we all know, a lot can change in a year.
Here's where I think Main Street's NII and payout ratio are headed this year (and how the dividend could be affected)...
You are receiving this email because you subscribed to Wealthy Retirement. Wealthy Retirement is published by The Oxford Club. Questions? Check out our FAQs. Trying to reach us? Contact us here.
Please do not reply to this email as it goes to an unmonitored inbox.
Nothing published by The Oxford Club should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed personalized investment advice. We allow the editors of our publications to recommend securities that they own themselves. However, our policy prohibits editors from exiting a personal trade while the recommendation to subscribers is open. In no circumstance may an editor sell a security before subscribers have a fair opportunity to exit. The length of time an editor must wait after subscribers have been advised to exit a play depends on the type of publication. All other employees and agents must wait 24 hours after publication before trading on a recommendation.
Any investments recommended by The Oxford Club should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.
Protected by copyright laws of the United States and international treaties. The information found on this website may only be used pursuant to the membership or subscription agreement and any reproduction, copying or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of The Oxford Club, LLC, 105 West Monument Street, Baltimore, MD 21201.