Main Street Capital Corporation Makes List of Top Monthly Dividend Stocks

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Main Street Capital made our website’s list of top monthly dividend stocks to buy during the COVID-19 pandemic.

Main Street Capital Corporation (NYSE:MAIN) is a Houston-based business development company (BDC). Main Street focuses on providing customized debt and equity financing solutions to lower middle market companies.

Those lower middle market companies generally have annual revenues between $10 million and $150 million. Main Street’s portfolio investments are typically made to support management buyouts, recapitalizations, growth financings, refinancings and acquisitions of companies that operate in diverse industry sectors.


Performance of Main Street Capital Corporation as a Top Monthly Dividend Stock

In the past five years, Main Street Capital’s stock price has been on a steady upwards trend. But the price per share took a considerable hit due to the COVID-19 pandemic, with a 64% decrease as it fell over the course of a month from $44.30 in February to just $15.73 in March. Since March, the price has been trending upward to reach $30.30, as of August 3, 2020.

The current stock price is 33.50% lower than its 52-week high of $45.10. The somewhat depressed stock price could signal that right now is a favorable time to buy, as investors who purchase at a reduced price will receive larger returns as the economy recovers from the implications of the pandemic.

Current Dividend Yield and Payouts 

MAIN ‘s monthly dividend payout is currently $0.205, a 5.1% boost from the $0.195 payout at this time last year. The company’s current dividend yield is 7.9%. Over the past five years, MAIN has had an average dividend yield of 8.2%, proving the company’s ability to sustain a consistent dividend. In the past 12 years, MAIN hiked its annual dividend amount 11 times and nearly doubled the total payout over the period.


Price/Earnings Ratio

MAIN’s current price-to-earnings (P/E) ratio is 13.02. The company’s P/E ratio is higher than that of the sector median, which is reported at 8.92. While this relatively high P/E ratio may be off-putting to some investors, it is essential to understand why the ratio is relatively high. MAIN’s price/earnings ratio is higher than that of its competitors because investors are willing to pay more for a stock that provides consistent, regular dividends. Main Street Capital provides the luxury of paying out regular dividends, and investors are inclined to pay more to receive this perk. Additionally, the company has accumulated revenue growth of 8.94% over the last three years, and 28.43% in the last 10 years. Steady revenue growth is another positive attribute that investors are willing to pay to obtain, since it signals that the company can sustain itself financially.

Comments From Main Street Capital Leadership 

In the Q1 earnings call on May 9, 2020, MAIN’s CEO, Dwayne Hyzak, delivered a confident and optimistic statement regarding the company’s ability to combat the current tumultuous economic climate. Hyzak said the following, “Fortunately, our intentional strategy of maintaining a conservative capital structure and significant liquidity position has allowed us to manage through the challenges to date, support our existing portfolio companies and continue to execute on new investment opportunities on a highly selective basis. In addition, we continue to believe that our highly diversified and mature investment portfolio will prove to be very beneficial as we work through the current environment.”

Hyzak also spoke highly of the portfolio companies that MAIN backs. He commended the portfolio companies for their efforts during this challenging time by saying,  “Throughout the last few months, as our Main Street investment teams have been extremely active in working with our portfolio companies, the strength of these portfolio company management teams has never been more evident or more valuable to us. We are extremely appreciative of the diligent efforts and proactive actions taken by our portfolio companies and we’re more confident than ever in our core philosophies of both selecting the right individuals to partner with and ensuring a strong alignment of interest with these individuals.”

Both of these statements from the CEO may instill confidence in investors. It is especially encouraging to know that the portfolio companies are all managed well, and that the respective leaders are working hard throughout this crisis, as lower middle market companies often are at high risk to the economic turmoil that is occurring. 

Why concludes Main Street Capital Stock is a Buy 

  • Reliable monthly dividend: Main Street Capital has been paying out a monthly dividend since 2007, and has increased it each of the past 15 consecutive years. The company has been able to maintain its dividend throughout the financial crisis, and statements from the CEO affirm that the company is equipped to keep combating the effects of the pandemic.   
  • Relatively depressed stock price: It is a favorable time to buy MAIN stock, while it is still recovering from the hit it took in March. The company has the capacity to execute a full recovery, so investors who buy in now will receive returns on their investment in addition to the dependable monthly dividend. 

Key Risks for Main Street Capital Corporation 

  • Portfolio company credit and investment risk: The portfolio companies in which BDCs invest could have limited financial resources and may be unable to meet their obligations on the debt securities held by the BDCs, causing them to default. BDCs are therefore exposed to significant credit risk when they make loans to, or hold debt securities issued by, portfolio companies
  • Interest rate risk: Since BDCs borrow money to make investments, their net investment income largely depends on the difference between the rate at which they can borrow funds and the rate they receive by investing those funds. A significant change in prevailing interest rates can have an adverse effect on a BDC’s net investment income. 
  • Market and valuation risk: Because investments made by BDCs are typically illiquid, such investments are challenging to value for purposes of determining a BDC’s net asset value. Changing market and economic conditions affecting a BDC’s investments may cause significant volatility in the BDC’s net asset value and stock price. Furthermore, the lack of liquidity of a BDC’s investments make it difficult to sell those investments if the need arises. 

Competitive Analysis

The chart below compares Main Street Capital Corporation (MAIN) to two of its competitors, FS KKR Capital Corporation (FSK) and Medley Capital Corporation (MCC), in terms of various financial metrics. 

Current Stock Price $30.30 $15.84 $14.35
Market Cap 2.004 billion  1.859 billion  35.935 million 
Beta  (5Y Monthly)  1.53 1.55 1.87
P/E Ratio (TTM) 13.02 4.55 N/A
EPS (TTM) – 1.31 – 4.35 – 2.5
Dividend Frequency  Monthly Quarterly Quarterly
Dividend Yield  7.9% 16.46% 32.02%

Main Street Capital Corporation is a solid investment for someone who is looking to add a monthly dividend stock to their portfolio. To learn about other monthly dividend stock suggestions, read the following article: 6 Best Monthly Dividend Stocks to Buy Now

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