Main Street Capital (NYSE:MAIN) Is Increasing Its Dividend To $0.23

Main Street Capital Corporation's (NYSE:MAIN) dividend will be increasing from last year's payment of the same period to $0.23 on 15th of September. This makes the dividend yield 7.1%, which is above the industry average.

View 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. Before making this announcement, Main Street Capital was earning enough to cover the dividend, but it wasn't generating any free cash flows. 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 fall by 14.6%. If recent patterns in the dividend continue, we could see the payout ratio reaching 92% in the next 12 months, which is on the higher end of the range we would say is sustainable.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was $1.80 in 2013, and the most recent fiscal year payment was $2.82. This works out to be a compound annual growth rate (CAGR) of approximately 4.6% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

We Could See Main Street Capital's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. 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.

Our Thoughts On Main Street Capital's Dividend

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 the low payout ratio is a 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 5 warning signs for Main Street Capital (2 are concerning!) that you should be aware of before investing. 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.