Main Street Capital invests mainly in lower-middle market and middle-market companies, with a highly diversified portfolio to manage investment risks. Its portfolio consists of 49% in the lower middle market, 26% in private loans and 18% in the middle market, with the largest individual portfolio company limited to no more than 5% of the total investment income.
About Main Street Capital (NYSE:MAIN)
As one of the best dividend stocks to buy, Main Street Capital provides debt and equity capital to lower- and middle-market companies, while paying its shareholders a current yield of 8.15%. Its monthly dividend payout currently is $0.205.
Main Street Capital provides its services to 181 companies across 25 industries. It is among the businesses whose investments and assets were hit by the COVID-19 market crash. The company had $36.5 million in net investment income on March 31, 2020, down 7% compared to $39.5 million during the same quarter a year ago. Despite this reduction in net investment income, Main Street Capital has continued its operations and recently announced a $9.3 million realized gain on one of its investments.
Performance of Main Street Capital
Main Street Capital reported an 8% drop in its total investment income for the quarter ended March 31, 2020, compared to the same quarter a year ago. During this time, Main Street Capital was able to increase its liquidity by 23% to $537 million. Although the COVID-19 financial crisis impacted Main Street Capital’s net earnings during the quarter, the company demonstrated it could withstand market crises through diversified investments and high liquidity.
Dwayne L. Hyzak, CEO of Main Street Capital, spoke encouragingly about the company’s capabilities and current strategy toward its portfolio companies.
“The current economic environment resulting from the unprecedented effects of the COVID-19 pandemic beginning during the first quarter has proved to be very challenging,” Hyzak said.
“Despite our challenging first-quarter results, we believe that we are well-positioned to weather the current market conditions and provide a very favorable outcome for all of our stakeholders, and we remain committed to maintaining a stable dividend payment level going forward.”
Main Street Capital Exit its Investments in IDX Broker, LLC.
On June 24, 2020, Main Street Capital announced that it had exited its debt and equity investments in IDX Broker, LLC., a software-as-a-service (SaaS) search and lead management solution which integrates data feeds for real estate professionals.
Main Street Capital realized a gain of $9.3 million upon the exit of this equity investment. Following the announcement, the company’s stock rose to $31.36 on June 25 from $31.15 on the previous day.
Dividend Policy Analysis
Main Street Capital maintains a dedicated and strong dividend policy for its investors with a rising dividend policy. Dividend payouts have increased 86% since the business development company’s initial public offering (IPO), and it has paid out another $4.04 in supplemental dividends. It currently shows a 3.80% trailing 12-month dividend growth rate.
Following five consecutive years of increased dividend payouts, Main Street Capital has a current monthly dividend of $0.205 that would convert to a $2.46 annual distribution and offer an 8.15% forward dividend yield. Its next dividend payment to investors will be on Aug., 14.
Price / Book Ratio
Main Street Capital currently trades at a 1.47 price to book ratio, so it is trading slightly higher than its book value.
Price / Earnings Ratio
Main Street Capital also has a 12.56 trailing price-to-earnings (P/E) ratio, which is much lower than the overall S&P 500 P/E ratio of 22.27. This P/E ratio suggests Main Street Capital has high earnings potential, especially when the COVID-19 crisis passes.
Recent Stock Price Performance
Main Street Capital’s stock price has fallen 28% since the start of the year, but it has climbed 99% from its low on March 23, 2020, as of July 15, 2020. The stock slid from the $43 range in February 2020 to the $25 range in April 2020. This change in share price is mainly attributed to the COVID-19-induced market crash. Prior to this, Main Street Capital’s stock price held steady at the $43 range and is currently increasing into the $31 range.
New Follow-On Investment in CAI Software
The company has recently announced a follow-on investment in Rhode Island-based CAI Software, LLC on June 16, 2020. CAI Software is an industry leader in the delivery of mission-critical enterprise resource planning (ERP), manufacturing execution systems (MES) and warehouse management systems (WMS) software and services. Main Street Capital made its initial investment in CAI Software during the fourth quarter of 2014.
This follow-on investment supports Main Street Capital’s acquisition of businesses and significantly expands its customer base and service offering. It consists of an additional $19.5 million of first-lien, senior secured term debt and a $0.4 million equity investment.
Key Takeaways for Main Street Capital:
- Main Street Capital’s share price is recovering from the COVID-19 crisis, rising 99% since its low. The gain shows market confidence in the company as a valuable stock.
- Its 8.15% dividend yield reflects strong dividend returns for income investors.
- It has a well-diversified investment portfolio across 25 industries.
- Investment income and earnings depend on the performance of Main Street Capital’s investment in its portfolio companies, which can continue to be adversely affected by COVID-19 and market crises.
- The company invests highly in lower-middle-market companies, offering both higher growth potential and higher risks.
Katie Kao is an editorial intern with Eagle Financial Publications and she writes for www.stockinvestor.com.