Main Street Capital (NYSE:MAIN) Has Announced That It Will Be Increasing Its Dividend To $0.215

Main Street Capital Corporation (NYSE:MAIN) will increase its dividend from last year's comparable payment on the 15th of September to $0.215. This will take the annual payment to 6.0% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Main Street Capital

Main Street Capital's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Main Street Capital's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Earnings per share is forecast to rise by 9.1% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 76% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was $1.62 in 2012, and the most recent fiscal year payment was $2.72. This works out to be a compound annual growth rate (CAGR) of approximately 5.3% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Main Street Capital has only grown its earnings per share at 2.8% per annum over the past five years. Main Street Capital is struggling to find viable investments, so it is returning more to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Our Thoughts On Main Street Capital's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Main Street Capital is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 5 warning signs for Main Street Capital you should be aware of, and 2 of them can't be ignored. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.