One of my top financial goals for 2026 is to grow my passive Income. My ultimate target is to generate enough passive income to cover my basic living expenses. That would enable me to achieve a level of financial freedom where I wouldn't have to worry about any potential future decline in my income level.
A key aspect of my strategy is to invest in high-quality, high-yielding dividend stocks with an excellent track record of steadily increasing their payouts. One company that certainly meets these criteria is Main Street Capital (MAIN 3.55%). Here's why I plan to buy shares of the high-yielding dividend stock hand over fist this year.
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A bankable and growing monthly dividend
Main Street Capital is a business development company (BDC). It primarily provides capital (debt and equity) to lower middle market companies (those with between $10 million and $150 million in annual revenue). The BDC will also make private loans to middle-market companies with between $25 million and $500 million in revenue. It primarily invests in companies owned by private equity or in the process of being acquired by a private equity fund.
The company has invested nearly $2.2 billion across 88 lower-middle-market portfolio companies, with 70.7% of this portfolio comprising debt investments. Additionally, Main Street Capital's private loan portfolio consists of $1.9 billion of primarily debt investments (94% of the portfolio) across 86 portfolio companies. Its debt investments generate interest income, while the equity investments often produce dividend income.
NYSE: MAIN
Key Data Points
Main Street Capital pays out a conservative percentage of its income via its monthly dividend. The company currently pays investors $0.26 per share each month ($3.12 annualized). That rate is 2% higher than its prior monthly dividend level and 4% higher than it was at the same time last year. At its recent share price of around $60, Main Street Capital's monthly dividend has a roughly 5.2% yield.
The BDC aims to provide investors with a sustainable and growing stream of monthly dividend income. It has never reduced or suspended its monthly dividend. Instead, it has increased the payment by a cumulative 136% since its initial public offering in late 2007.
An additional supplemental income stream
As a BDC, Main Street Capital must distribute 90% of its taxable income to shareholders in dividends. Since the company has set its monthly dividend at a lower sustainable rate compared to its income, the company often must distribute additional income to investors to remain in compliance with IRS regulations. It does that by periodically paying supplemental quarterly dividends.
Main Street Capital recently paid a quarterly supplemental dividend of $0.30 per share. It has paid that same rate every quarter for the past two years, while making a supplemental payment each quarter since late 2021. Overall, the BDC has paid $7.84 per share in supplemental dividends since its IPO.
When adding the current supplemental rate to the monthly dividend, Main Street Capital's annualized dividend is $4.32 per share. That pushes the BDC's yield to 7.2%.
While income investors can't bank on these supplemental dividend payments (Main Street Capital didn't make any supplemental dividend payments during the first few quarters of 2021), the company often makes these payments during healthy market conditions. They enable the BDC to return excess income to investors, remaining in compliance with IRS regulations, while still providing investors with an income floor through its sustainable monthly payout.
The potential for two passive income streams
Main Street Capital is an excellent income-generating investment. It pays a sustainable and steadily rising monthly dividend that income investors can count on. Additionally, it periodically pays supplemental quarterly dividends. Those dual income streams are ideal for my investment strategy, which is why I plan to buy a lot more shares of Main Street Capital in 2026.
