Monthly Dividend Stock In Focus: Main Street Capital

Up to date on August twenty seventh, 2024 by Bob Ciura

Enterprise Growth Corporations – or BDCs, for brief – could be a nice supply of present yield for revenue traders.

Major Road Capital Company (MAIN) is a good instance of this. MAIN inventory has a present dividend yield of 6.0%.

Higher but, Major Road Capital inventory pays month-to-month dividends.

You possibly can obtain our full Excel spreadsheet of all ~80 month-to-month dividend shares (together with metrics that matter like dividend yield and payout ratio) by clicking on the hyperlink beneath:

The inventory’s excessive dividend yield and month-to-month funds make it a stable alternative for revenue traders.

Major Road Capital’s enterprise seems to be performing nicely. This text will focus on the funding prospects of Major Road Capital Company intimately.

Enterprise Overview

Major Road Capital Company is a Enterprise Growth Firm, or BDC. You possibly can see our full BDC record right here.

The corporate operates as a debt and fairness investor for decrease center market firms (these with $10-$150 million of annual revenues) looking for to remodel their capital constructions.

BDCs have the power to spend money on each debt and fairness, which give them a bonus over firms who spend money on personal debt or personal fairness alone.

Major Road Capital Company additionally invests within the personal debt of middle-market firms (not decrease middle-market firms) and has a budding asset administration advisory enterprise.

Supply: Investor Presentation

Holdings are extremely diversified by each transaction kind and geography. By transaction kind, the BDC acquires most of its offers through recapitalization and leveraged buyouts.

Major Road Capital Company additionally has a really excessive diploma of diversification by trade.

On the finish of Q2 2024, Major Road had an curiosity in 83 decrease center market firms (valued at $2.4 billion), 19 center market firms ($184 million) and 92 personal mortgage investments ($1.7 billion).

Development Prospects

Major Road Capital Company’s development prospects come from its distinctive technique of driving funding returns. In flip, the BDC sustains its excessive month-to-month dividend payout, and grows it over time.

On Could seventh, 2024, Major Road Capital introduced a 2.1% dividend improve, to $0.245 per share paid month-to-month. The present annualized dividend payout is $2.94 per share.

On August eighth, 2024, Major Road Capital reported second quarter 2024 outcomes. Internet funding revenue of $87.3 million elevated 2%, in comparison with $85.7 million in Q2 2023. Internet funding revenue per share of $1.01, declined 5% year-over-year.

Distributable internet funding revenue per share totaled $1.07, down 4% from $1.12 in Q2 2023. Major Road’s internet asset worth ended the quarter at $29.80, a 2.1% improve from the tip of final 12 months.

Major Road has put collectively a stable document previously decade, with a nine-year and five-year internet funding revenue per share CAGR of seven.3% and 9.8%, respectively.

We anticipate MAIN to develop its internet funding revenue per share by 1% per 12 months over the following 5 years.

Dividend Evaluation

MAIN pays a month-to-month dividend. The corporate has additionally paid substantial supplemental dividends on numerous events. The newest instance was a supplemental payout of $0.30 per share that was declared on August sixth, 2024.

These are one-time particular dividends, however we anticipate the corporate to proceed this custom of particular dividends when distributable NII per share considerably exceeds its month-to-month dividend payouts.

The supplemental dividends have been a results of producing realized beneficial properties from Major Road’s fairness investments.

Supply: Investor Presentation

The dividend seems safe. For instance, based mostly on NII-per-share the corporate simply lined its dividend over the previous two years.

For 2024, we anticipate MAIN to generate NII-per-share of $4.13. With a ahead annualized dividend payout of $2.94 per share, MAIN has an anticipated dividend payout ratio of roughly 71% for 2024.

Its common dividend development alongside occasional particular dividends additionally indicate that its dividend is in good condition.

As a way to keep away from company revenue tax as a BDC, Major Road should distribute no less than 90% of its taxable revenue, leaving little wiggle room to fund development.

Whereas this technique has labored extraordinarily nicely for the reason that final recession, we do warning that this methodology of funding turns into considerably much less enticing (and costlier) in weaker financial durations.

The principle menace to the dividend is that if the economic system goes into recession, forcing many debtors to default and rates of interest on its floating price loans to plummet.

Because of this, earnings per share would doubtless decline quickly, forcing the corporate to right-size its dividend. For now, nonetheless, the dividend seems to be protected.

Last Ideas

Though Major Road Capital Company is off-the-radar for many dividend development traders, this BDC has a robust historical past of delivering substantial shareholder returns.

The agency’s sturdy monitor document of superior funding administration and experience within the decrease center market section offers it a robust aggressive benefit within the personal fairness and debt trade.

Additional, Major Road Capital Company is shareholder-friendly BDC with a excessive yield and month-to-month payouts.

Additional Studying: 20 Highest-Yielding BDCs

Don’t miss the sources beneath for extra month-to-month dividend inventory investing analysis.

And see the sources beneath for extra compelling funding concepts for dividend development shares and/or high-yield funding securities.