Stock Analysis
- United States
- /
- Capital Markets
- /
- NYSE:MAIN
Main Street Capital (NYSE:MAIN) Will Pay A Dividend Of $0.10
Main Street Capital Corporation's (NYSE:MAIN) investors are due to receive a payment of $0.10 per share on 28th of December. This means the annual payment is 8.1% of the current stock price, which is above the average for the industry.
Check out the opportunities and risks within the US Capital Markets industry.
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 paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. We think that this practice can make the dividend quite risky in the future.
Over the next year, EPS is forecast to expand by 55.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 65%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the annual payment back then was $1.68, compared to the most recent full-year payment of $2.98. This implies that the company grew its distributions at a yearly rate of about 5.9% over that duration. 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
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. Although it's important to note that Main Street Capital's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.
We should note that Main Street Capital has issued stock equal to 11% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Main Street Capital's payments, as there could be some issues with sustaining them into the future. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, Main Street Capital has 5 warning signs (and 2 which shouldn't be ignored) 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.
What are the risks and opportunities for Main Street Capital?
Main Street Capital Corporation is a business development company specializes in equity capital to lower middle market companies.
Rewards
Trading at 9.1% below our estimate of its fair value
Earnings are forecast to grow 11.25% per year
Risks
Debt is not well covered by operating cash flow
Shareholders have been diluted in the past year
Significant insider selling over the past 3 months
Profit margins (61.3%) are lower than last year
Further research on
Main Street Capital
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About NYSE:MAIN
Main Street Capital
Main Street Capital Corporation is a business development company specializes in equity capital to lower middle market companies.
Average dividend payer and fair value.
