Main Street Capital Stock (NYSE:MAIN): This Monthly Dividend Stock Now Yields 5.8%
1 Top Monthly Dividend Stock for Income Investors
In today’s stock market, very few companies pay monthly dividends. And because investors are willing to pay a premium for more frequent distributions, the price of the most well-known monthly dividend stocks have already been bid up.
Dividend yield moves inversely to a company’s share price. So does that mean investors looking for monthly dividends have to settle for a low yield?
Not necessarily. For instance, Main Street Capital Corporation (NYSE:MAIN) is a solid monthly dividend stock that’s currently yielding 5.8%.
Main Street Capital is a business development company, or “BDC.” Headquartered in Houston, Texas, it focuses on providing long-term debt and equity capital to lower-middle-market companies. These businesses generally have revenue between $10.0 million and $150.0 million and earnings before interest, tax, depreciation and amortization (EBITDA) of between $3.0 million and $20.0 million.
As an investment firm, Main Street has more than $3.5 billion in investment capital under management. Its portfolio is well diversified across industry, geography, and transaction type.
By the end of March 2017, the company has investments in 191 companies. The largest individual portfolio company represents just 3.7% of Main Street’s total investment income and just 3.1% of total portfolio value. Having a diversified portfolio provides structural protection to the company revenue and income stream.
Total Portfolio by Industry (As a Percentage of Cost)
Source: “Investor Presentation,” Main Street Capital Corporation, June 6, 2017.
For a business development company, a common measure of performance is growth in net asset value (NAV). Since 2007, Main Street Capital’s NAV per share has increased 75%, translating to a compound annual growth rate of 6.2%.
One of the reasons why Main Street can deliver strong NAV-per-share growth was its ability to invest in lower-middle-market equity. Because most BDCs focus on debt alone, they could not deliver this kind of NAV-per-share growth through business cycles.
Delivering Strong Total Returns
One of the things that draws investors to this monthly dividend stock is its handsome dividend yield. Very often, a company’s high yield comes from subdued share price. However, that’s not really the case for Main Street.
Main Street Capital completed its initial public offering (IPO) in 2007, which was not exactly the best times for our economy. But over the years, the company has delivered strong shareholder return through its generous dividends and share price appreciation.
Source: “Summary Fact Sheet,” Main Street Capital Corporation, last accessed June 6, 2017.
As the chart above shows, since Main Street’s IPO, it has consistently outperformed its peer group and a number of stock market indices.
Here’s the best part: this monthly dividend stock has been raising its payout. Main Street started with quarterly dividends and switched to monthly payments in September 2008. Since the company’s IPO, its per-share monthly payout has increased 68%. (Source: “Dividends,” Main Street Capital Corporation, last accessed June 6, 2017.)
What’s more is that the company is paying special cash dividends on top of its regular dividends. Usually, special dividends are nonrecurring, but Main Street began paying periodic supplemental dividends in January 2013 and moved to semi-annual special dividends in July 2013. The company recently declared a $0.275-per-share supplemental dividend to be paid later this month.
After including special dividends, this monthly dividend stock would be yielding 7.24% at today’s price.