Main Street Capital (NYSE:MAIN) Is Paying Out A Larger Dividend Than Last Year

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 August. This takes the dividend yield to 7.8%, which shareholders will be pleased with.

See our latest analysis for Main Street Capital

Main Street Capital's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. 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.

Looking forward, earnings per share is forecast to fall by 14.1% over the next year. 

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of $1.80 in 2013 to the most recent total annual payment of $3.30. This means that it has been growing its distributions at 6.2% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

We Could See Main Street Capital's Dividend Growing

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Main Street Capital has seen EPS rising for the last five years, at 5.8% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

We should note that Main Street Capital has issued stock equal to 12% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

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 Main Street Capital is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Main Street Capital has 4 warning signs (and 1 which is potentially serious) we think you should know about. 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.