Main Street’s Dividend May Be Worth a Look

Image: Shares of Main Street have caught a bid recently, and commentary from management remains encouraging.

By Brian Nelson, CFA

On May 9, Main Street Capital (MAIN) reported first quarter results for 2024. Net investment income came in at $89.8 million, or $1.05 per share, while distributable net investment income was $94.4 million, or $1.11 per share. The business development company generated total investment income of $131.6 million in the quarter and put up “an industry leading position in cost efficiency.”

Impressively, Main Street Capital generated a return on equity of 17.2% on an annualized basis for the quarter and 19.3% for the trailing twelve-month period. Main Street Capital’s net asset value was $29.54 at the end of March, and the company declared both a regular and supplemental dividend totaling $1.02 per share for the quarter. The executive team had a lot to say about the quarter in the press release:

We are extremely pleased with our performance in the first quarter, which resulted in continued strong operating results highlighted by a return on equity of 17.2%, net investment income per share and distributable net investment income per share that significantly exceeded the dividends paid to our shareholders and a new record for net asset value per share for the seventh consecutive quarter. These results demonstrate the continued and sustainable strength of our overall platform, the benefits of our differentiated and diversified investment strategies, the unique contributions of our asset management business and the continued underlying strength and quality of our portfolio companies. We are also pleased that we generated growth in both our lower middle market and private loan investment portfolios in the first quarter and ended the quarter with attractive investment pipelines in both investment strategies, which we believe will be helpful as we work to maintain our positive momentum from the last few quarters into the future.

Our distributable net investment income in the first quarter significantly exceeded the dividends paid to our shareholders, with our distributable net investment income exceeding the monthly dividends paid to our shareholders by 54% and the total dividends paid to our shareholders by 9%. This level of dividend coverage is after we increased the total dividends paid to our shareholders in the first quarter of 2024 by 20% when compared to the comparable period in the prior year. This strong performance allowed us to deliver significant value to our shareholders, while still conservatively retaining a meaningful portion of our income and growing our net asset value per share for the future benefit of our shareholders. In addition, our strong first quarter results and favorable outlook for the second quarter resulted in the declaration of an increase to our monthly dividends for the third quarter of 2024 and a $0.30 per share supplemental dividend to be paid in June 2024, representing our eleventh consecutive quarterly supplemental dividend, to go with the seven increases to our regular monthly dividends in the same time period. Additionally, with the continued support from our long-term lender relationships, and the benefits of our recent investment grade debt offering in January 2024, we continue to maintain very strong liquidity and a conservative leverage profile, which we believe is important in the current economic environment, and we remain excited about the current opportunities in both our lower middle market and private loan investment strategies. 

Main Street Capital has been doing a lot of things right of late, and the company’s total dividend yield isn’t shabby by any stretch. Though we’re not huge fans of business development companies, more generally, commentary from Main Street Capital’s press release suggests this high yielder is definitely worth a look. Shares are up nicely over the past 52 weeks.

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