Main Street Capital's (NYSE:MAIN) Shareholders Will Receive A Bigger Dividend Than Last Year
Main Street Capital Corporation (NYSE:MAIN) will increase its dividend from last year's comparable payment on the 15th of November to $0.22. This makes the dividend yield 8.5%, which is above the industry average.
View our latest analysis for Main Street Capital
Main Street Capital's Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Main Street Capital was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.
EPS is set to grow by 8.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 81%, which is on the higher side, but certainly still feasible.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was $1.62 in 2012, and the most recent fiscal year payment was $2.82. This implies that the company grew its distributions at a yearly rate of about 5.7% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.
Main Street Capital May Find It Hard To Grow The Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 2.4% per year. The company has been growing at a pretty soft 2.4% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.
Our Thoughts On Main Street Capital's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Main Street Capital is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 5 warning signs for Main Street Capital (of which 2 can't be ignored!) you should know about. Is Main Street Capital not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.
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