Main Street Capital (NYSE: MAIN) is a Houston-based investment firm that primarily loans money or provides capital to privately owned businesses. The companies in its portfolio are typically cash flow positive and generate at least $10 million in revenue per year.
Main Street Capital’s portfolio includes…
- Jensen Jewelers, a 50-year-old jewelry chain based in Twin Falls, Idaho
- MetalForming, the largest distributor of metal folding machines in the world, which was established in 1997 and is based in Peachtree City, Georgia
- All Hose & Specialty, a 29-year-old company headquartered in Broussard, Louisiana, that distributes (you guessed it) hoses and parts to the oil industry.
As you can see, these are not startups hoping to make it big. These are established businesses that have been around for decades.
Not including special dividends, Main Street Capital has raised its dividend every year since 2011. It pays a monthly dividend of $0.225, which comes out to a 6.8% yield.
But can Main Street Capital continue to provide shareholders with such a strong monthly payout?
Since Main Street Capital is in the lending business, we’re going to look at net interest income. This is the difference between how much it costs the company to borrow money and how much it makes on interest when it lends out those borrowed funds (minus other expenses).
In 2020, there was a decline in net interest income – unsurprisingly. But it quickly rebounded in 2021 and 2022. Wall Street doesn’t have an estimate for this year, but revenue and profits are forecast to grow, so it is likely that net interest income will rise as well.
Impressively, last year, net interest income was 57% higher than the pre-pandemic levels of 2019.
The payout ratio is in good shape. Last year, Main Street Capital paid out 69% of its net interest income in the form of dividends.
With net interest income likely to increase in 2023, the payout ratio should still be low enough not to cause any concern.
Main Street Capital has a terrific dividend-paying track record, a low payout ratio and growing net interest income.
This nearly 7% dividend yield is very safe.
Dividend Safety Rating: A
— Marc Lichtenfeld
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Source: Wealthy Retirement