Main Street Capital's (NYSE:MAIN) Dividend Will Be Increased To $0.23

The board of Main Street Capital Corporation (NYSE:MAIN) has announced that it will be paying its dividend of $0.23 on the 15th of September, an increased payment from last year's comparable dividend. This will take the annual payment to 6.9% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Main Street Capital

Main Street Capital's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Main Street Capital was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to fall by 14.6%. If recent patterns in the dividend continue, we could see the payout ratio reaching 92% in the next 12 months, which is on the higher end of the range we would say is sustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was $1.80 in 2013, and the most recent fiscal year payment was $2.82. This means that it has been growing its distributions at 4.6% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Main Street Capital has seen EPS rising for the last five years, at 5.8% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Main Street Capital's Dividend

Overall, we always like to see the dividend being raised, but we don't think Main Street Capital will make a great income stock. While Main Street Capital is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 5 warning signs for Main Street Capital you should be aware of, and 2 of them are concerning. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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