Do you need reliable monthly investment income to help cover your ongoing living expenses? Your options are limited, but there are some out there. An outfit called Main Street Capital (MAIN +1.08%) is one of them. Here's what you need to know.
What's Main Street Capital?
It's not a conventional company because it doesn't make products or provide a revenue-bearing service. Rather, Main Street Capital is a business development company (BDC). That just means it provides capital to businesses that can put it to constructive use. Usually, this money is provided as an interest-bearing loan, though Main Street will occasionally take an equity stake. Propane company Flame King, Jensen Jewelers, and Rug Doctor are just some of the businesses in Main Street Capital's portfolio.
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It's a somewhat unusual business model, although not as unusual as you might think. Ares Capital, Apollo Investment Corp. (now called MidCap Financial Investment Corp.), and Hercules Capital are all also in the business.
Even by dividend-paying BDC standards, though, Main Street Capital is somewhat unusual in that it pays its ordinary dividends on a monthly rather than quarterly basis, with a supplemental dividend dished out every quarter to reflect any profits above and beyond income that supports its regular dividend. While the latter can and does vary somewhat, the former is not only consistently paid, but it also consistently rises. The company's ordinary monthly dividend has grown from $0.125 per share as of 2010, in fact, to $0.26 per share now.
NYSE: MAIN
Key Data Points
Just as impressive, however, is that Main Street Capital's share price has advanced from its late-2008 post-IPO low of less than $10 to more than $54 per share, demonstrating investors can get solid income and decent capital appreciation from a single holding.
Not for everyone, but suitable for most
It's still not for everyone. This stock ebbs and flows quite a bit with the ever-changing cost of capital, or interest rates. Investors may not need or want a holding that splits the duties of growth and income. Then there's the fact that interest in the private credit model is waning, thanks to too many loan defaults from borrowers previously believed to be more durable. Indeed, the aforementioned MidCap and Ares both recently restricted investors' redemptions of their stakes to curb destabilizing liquidations. If Main Street Capital's funding dries up and it can't lend more money, it can't grow its business, revenue, earnings, or its dividend payments.
On balance, however, Main Street Capital remains one of the healthier and better-managed business development companies, and it is likely to sidestep such pitfalls.
One big reason for this is simply that -- unlike many others of its ilk -- this BDC is internally managed, meaning it intimately knows its portfolio companies before and after funding them. This structure also simplifies operations and lowers net operating costs.
Either way, newcomers will be plugging into Main Street Capital at a forward-looking yield of just under 6%. That's above-average recurring income from a holding capable of decent capital appreciation with only a modest degree of risk.
