I regularly review a large number of high-yield stocks. I try to dig out the details that separate a high-quality company from one that has the potential to truly whack investor wealth. That’s why Main Street Capital (MAIN) is my conservative pick for 2024, explains Tim Plaehn, editor of The Dividend Hunter.
I often talk about how tremendous value can be found in the dark corners of the stock market, where the investing public doesn’t understand how these undiscovered nuggets of dividend-paying companies operate. But sometimes I realize I need to go back and discuss a stock that should be a core holding for almost every stock market investor. And MAIN may just be the best income stock that exists.
The increase in interest rates dictated by the Fed over the last year has been very good for the profitability of business development companies (BDCs). And MAIN is really quite different from the rest of the BDC crowd.
Since its 2007 IPO, MAIN has tripled the total return average of its BDC peers. The company has an unmatched record of dividend growth. MAIN pays monthly dividends. Plus, the company historically has paid quarterly supplemental dividends.
The company provides “one-stop” capital solutions (private debt and private equity capital) to lower middle market companies and debt capital to middle market companies. Main Street’s lower middle market (LMM) companies generally have annual revenues between $10 million and $150 million, while Main Street’s middle market debt investments are made in businesses that are generally larger in size.
The company’s mix of lower middle market client, middle market client, and private loans mix provides a combination of net interest income to support MAIN’s very excellent history of dividend payments. Plus, MAIN holds an industry leading position in cost efficiency, with an Operating Expense to Assets Ratio of 1.4%.
This three-tier investment portfolio is what sets MAIN apart from the rest of the BDC crowd, and what makes it an income stock for all seasons.
The result has been a BDC that has generated both regular dividend growth for investors and special dividends to pay out capital gains. As an additional bonus, MAIN pays monthly dividends, smoothing out the cash flow into your brokerage account. MAIN should be a core holding for any income-focused investor.