4 Earnings Themes to Watch at Main Street Capital Corporation

Here's what investors need to watch going into Main Street Capital's earnings release.

Feb 12, 2014 at 3:41PM

Main Street Capital Corporation (NYSE:MAIN) will report earnings on February 27, and all eyes are on this top-performing business development company.

Main Street Capital is a rising star, delivering impressive capital gains and dividends to investors since its IPO in 2007. Investors who bought in at IPO have enjoyed a total return (dividends reinvested) in excess of 300%.

MAIN Total Return Price Chart

Source: YCharts

Let's take a look at some of the most important things to watch when Main Street Capital reports earnings.

1. New nonaccruals
We'll start with the ugly -- losing investments. Main Street Capital reported in its fourth quarter update that it moved two investments to nonaccrual status, reflecting the potential that Main Street Capital may take a permanent loss on these two items.

Luckily, the company also noted that these losers won't have outsized impact on the company's balance sheet. And while two investments will get a write down, a prior non-accrual will go back to accrual. I'm eager to see which investments these are, and the size of the investments on the balance sheet.

2. The dividend
Main Street Capital pays a monthly dividend, with two supplemental dividends paid each year. Combined with the $0.50 in supplemental dividends, the company expects to pay out more than $2.50 in dividends in 2014, exceeding the $2.48 dividend rate paid in 2013.

This is, in my view, a promising sign. Main Street Capital could simply increase its supplemental dividends, but the increase will come in the form of a monthly dividend increase. That suggests optimism surrounding its ability to pay a bigger, routine dividend.

3. Another secondary?
Main Street Capital raises funds with secondary offerings, which typically lead to a quick, 4%-5% decline in share price as new shares hit the market. I'm interested to hear something about capital-raising plans in the conference call.

The company currently trades at about 1.7 times book value, so raising new capital adds significantly to existing shareholders' wealth. However, new shares dilute the value of the company's low-cost funding from the Small Business Administration, as it is already making full use of the SBA lending program. New debt capital will be more expensive than the subsidized rate Main Street gets from Uncle Sam, so Main Street is at a crossroads -- it's go big, or go home.

4. Investment yields
The lower middle market is the company's niche, where it earns more than 14% on debt investments in small, American businesses. Last quarter, yields fell from 15.4% to 14.9%, a trend that demands careful scrutiny. Many BDCs have reported declining yields on debt investments -- we'll want to see yield compression slow in the fourth quarter. Remember, Main Street earns only 8.9% on debt investments in larger middle-market investments, some six percentage points less than its returns in the lower middle market.

The Foolish bottom line
Main Street Capital's outperformance comes from quality underwriting and above-average debt yields. This quarter, investors will want to see that the "special sauce" is still in play at this top-performing BDC. In particular, I'll pay special attention to Main Street Capital's plan to reverse its two new underperforming investments, and any impact it may have on earnings going forward. 

Nine rock-sold dividends to buy and hold
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks, as a group, handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks, in particular, are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Jordan Wathen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers