Main Street Capital (NYSE:MAIN) Has Announced That It Will Be Increasing Its Dividend To $0.235

Main Street Capital Corporation's (NYSE:MAIN) dividend will be increasing from last year's payment of the same period to $0.235 on 15th of November. This will take the annual payment to 7.1% 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 Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Main Street Capital was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, earnings per share is forecast to fall by 14.6% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 101%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was $1.80, compared to the most recent full-year payment of $2.82. This works out to be a compound annual growth rate (CAGR) of approximately 4.6% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

We Could See Main Street Capital's Dividend Growing

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Main Street Capital has impressed us by growing EPS at 5.8% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Main Street Capital's payments are rock solid. While Main Street Capital is earning enough to cover the payments, the cash flows are lacking. We don't think Main Street Capital is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Main Street Capital has 5 warning signs (and 2 which are a bit unpleasant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.