Monthly Dividend Stock In Focus: Main Street Capital

Up to date on August twenty seventh, 2024 by Bob Ciura

Enterprise Improvement Firms – or BDCs, for brief – is usually a nice supply of present yield for revenue buyers.

Fundamental Avenue Capital Company (MAIN) is a superb instance of this. MAIN inventory has a present dividend yield of 6.0%.

Higher but, Fundamental Avenue Capital inventory pays month-to-month dividends.

You may obtain our full Excel spreadsheet of all ~80 month-to-month dividend shares (together with metrics that matter like dividend yield and payout ratio) by clicking on the hyperlink beneath:

The inventory’s excessive dividend yield and month-to-month funds make it a strong selection for revenue buyers.

Fundamental Avenue Capital’s enterprise seems to be performing effectively. This text will focus on the funding prospects of Fundamental Avenue Capital Company intimately.

Enterprise Overview

Fundamental Avenue Capital Company is a Enterprise Improvement Firm, or BDC. You may see our full BDC checklist right here.

The corporate operates as a debt and fairness investor for decrease center market firms (these with $10-$150 million of annual revenues) searching for to remodel their capital buildings.

BDCs have the flexibility to spend money on each debt and fairness, which give them a bonus over firms who spend money on personal debt or personal fairness alone.

Fundamental Avenue Capital Company additionally invests within the personal debt of middle-market firms (not decrease middle-market firms) and has a budding asset administration advisory enterprise.

Supply: Investor Presentation

Holdings are extremely diversified by each transaction sort and geography. By transaction sort, the BDC acquires most of its offers through recapitalization and leveraged buyouts.

Fundamental Avenue Capital Company additionally has a really excessive diploma of diversification by business.

On the finish of Q2 2024, Fundamental Avenue had an curiosity in 83 decrease center market firms (valued at $2.4 billion), 19 center market firms ($184 million) and 92 personal mortgage investments ($1.7 billion).

Progress Prospects

Fundamental Avenue Capital Company’s progress prospects come from its distinctive technique of driving funding returns. In flip, the BDC sustains its excessive month-to-month dividend payout, and grows it over time.

On Could seventh, 2024, Fundamental Avenue Capital introduced a 2.1% dividend improve, to $0.245 per share paid month-to-month. The present annualized dividend payout is $2.94 per share.

On August eighth, 2024, Fundamental Avenue Capital reported second quarter 2024 outcomes. Web funding revenue of $87.3 million elevated 2%, in comparison with $85.7 million in Q2 2023. Web funding revenue per share of $1.01, declined 5% year-over-year.

Distributable internet funding revenue per share totaled $1.07, down 4% from $1.12 in Q2 2023. Fundamental Avenue’s internet asset worth ended the quarter at $29.80, a 2.1% improve from the top of final yr.

Fundamental Avenue has put collectively a strong report prior to now decade, with a nine-year and five-year internet funding revenue per share CAGR of seven.3% and 9.8%, respectively.

We anticipate MAIN to develop its internet funding revenue per share by 1% per yr over the subsequent 5 years.

Dividend Evaluation

MAIN pays a month-to-month dividend. The corporate has additionally paid substantial supplemental dividends on numerous events. The latest instance was a supplemental payout of $0.30 per share that was declared on August sixth, 2024.

These are one-time particular dividends, however we anticipate the corporate to proceed this custom of particular dividends when distributable NII per share considerably exceeds its month-to-month dividend payouts.

The supplemental dividends have been a results of producing realized positive factors from Fundamental Avenue’s fairness investments.

Supply: Investor Presentation

The dividend seems safe. For instance, based mostly on NII-per-share the corporate simply lined its dividend over the previous two years.

For 2024, we anticipate MAIN to generate NII-per-share of $4.13. With a ahead annualized dividend payout of $2.94 per share, MAIN has an anticipated dividend payout ratio of roughly 71% for 2024.

Its common dividend progress alongside occasional particular dividends additionally suggest that its dividend is in fine condition.

With a purpose to keep away from company revenue tax as a BDC, Fundamental Avenue should distribute no less than 90% of its taxable revenue, leaving little wiggle room to fund progress.

Whereas this technique has labored extraordinarily effectively because the final recession, we do warning that this technique of funding turns into considerably much less enticing (and costlier) in weaker financial durations.

The primary menace to the dividend is that if the economic system goes into recession, forcing many debtors to default and rates of interest on its floating price loans to plummet.

Consequently, earnings per share would seemingly decline quickly, forcing the corporate to right-size its dividend. For now, nevertheless, the dividend seems to be protected.

Ultimate Ideas

Though Fundamental Avenue Capital Company is off-the-radar for many dividend progress buyers, this BDC has a powerful historical past of delivering substantial shareholder returns.

The agency’s robust observe report of superior funding administration and experience within the decrease center market phase offers it a powerful aggressive benefit within the personal fairness and debt business.

Additional, Fundamental Avenue Capital Company is shareholder-friendly BDC with a excessive yield and month-to-month payouts.

Additional Studying: 20 Highest-Yielding BDCs

Don’t miss the assets beneath for extra month-to-month dividend inventory investing analysis.

And see the assets beneath for extra compelling funding concepts for dividend progress shares and/or high-yield funding securities.