Stock Analysis

Main Street Capital (NYSE:MAIN) Is Increasing Its Dividend To $0.215

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Main Street Capital Corporation (NYSE:MAIN) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of September to $0.215. This takes the dividend yield to 6.3%, which shareholders will be pleased with.

See our latest analysis for Main Street Capital

Main Street Capital's Dividend Is Well Covered By Earnings

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. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to expand by 8.0%. If the dividend continues along recent trends, we estimate the payout ratio could reach 78%, which is on the higher side, but certainly still feasible.

NYSE:MAIN Historic Dividend August 25th 2022

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from $1.62 total annually to $2.72. This implies that the company grew its distributions at a yearly rate of about 5.3% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Main Street Capital might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 2.4% per year. Growth of 2.4% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On Main Street Capital's Dividend

Overall, we always like to see the dividend being raised, but we don't think Main Street Capital will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. 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. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 5 warning signs for Main Street Capital (of which 2 are a bit unpleasant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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