Main Street Capital's (NYSE:MAIN) record stands high above its peers. While it's had its fair share of losers, its winners have more than made up for them. The result is a stock chart worthy of envy, and the highest valuation of its any of its peers.
There's more to being a great investor than simply picking winners, however. Importantly, Main Street is very good at picking winners and letting them ride. Of the 28 portfolio companies in which it was invested in at the end of 2007, 10 are still on its balance sheet.
The original portfolio turned out to be chock-full of gems, but one stands out as particularly impressive -- a company by the odd name of CBT Nuggets. It's a wonderfully simple company that makes money selling online training courses to IT professionals for less than $1,000 per year.
CBT Nuggets was a winner from the time of Main Street Capital's public debut, when the investment company carried its investment in CBT at a $1 million unrealized gain. Today, that unrealized gain stands at $37.6 million.
And while BDCs are often described as "black boxes" for marking their investments up and down with little justification, Main Street's filings clearly show this company is a winner.
Consider this: In 2007, CBT paid Main Street dividends of just $270,000. This year, CBT has already sent Main Street dividend payments tallying to more than $3.5 million, or roughly $0.07 per Main Street Capital share.
Main Street Capital currently values its share of the company at $38.9 million, roughly 10 times the annual cash flow it sends back to the company. That may be conservative in light of CBT's ability to send more and more cash Main Street's way.
Cumulative dividends tally to $13.1 million, more than 10 times Main Street's cost basis for its equity investment in CBT Nuggets.
The company has become such a big driver of Main Street Capital's performance that it has recently received SEC scrutiny as to whether Main Street "controls" the company by the regulators' definition. (The majority owner's desire for privacy may well be a reason Main Street decides to sell it in the future.)
Of course, not all investments pan out this well. Some of the investments Main Street Capital held at the time of its 2007 IPO promptly went to zero during the financial crisis. That's how the game works. For every loser, you can only hope to have a runaway winner.
When you look into a BDC's books, these are the kinds of companies investors want to see. Companies that are rising in value because they're paying more and more cash back to their owners in the form of dividends. Call them golden "nuggets," if you will.