The following is from the MAIN Deep Dive that was previously provided to subscribers of Premium BDC Reports along with revised target prices, dividend coverage and risk profile rankings, potential credit issues, earnings/dividend projections, quality of management, fee agreements, and my personal positions for all business development companies (“BDCs”).
October 17, 2019: MAIN declared its semi-annual supplemental cash dividend of $0.24 per share payable in December 2019. This supplemental cash dividend is in addition to the previously announced regular monthly cash dividends that Main Street declared for the fourth quarter of 2019 of $0.615 per share, or $0.205 per share for each of October, November and December 2019. See more details below on Transitioning the Dividend Payments.
For Q2 2019, Main Street Capital (MAIN) reported between its base and best case projections with NII per share of $0.63, covering its regular dividends by 105% with lower-than-expected portfolio growth and lower portfolio yield. Distributable net investment income was $0.67 per share for the quarter compared to regular dividends of $0.60. On April 17, 2019, the company priced its public offering of $250 million of 5.20% notes due 2024 driving slightly higher interest expense. There was a decrease in the amount of share issuances likely due to lower portfolio growth and keeping consistent leverage (debt-to-equity ratio) as shown in the following table:
Net asset value (“NAV”) per share decreased by $0.24 or 1.0% (from $24.41 to $2424.17) due to the semiannual supplemental dividend of $0.250 per share and income tax provision of $3.4 million or $0.055 per share partially offset by appreciation in its lower middle market portfolio, accretive share issuances and overearning the regular dividends during the quarter.
Dwayne L. Hyzak, CEO: “We are pleased with our operating results for the second quarter, a quarter during which the continued execution of our differentiated investment strategy and the leverage of our efficient, low cost operating structure facilitated favorable operating performance and financial results. As a result of our performance, we again generated distributable net investment income per share in excess of our regular monthly dividends, exceeding the regular monthly dividends paid during the quarter by approximately 12%. We believe that the advantages of our differentiated investment strategy and efficient operating structure, and our conservative capital structure and significant liquidity position, have us very well positioned for continued future success.”
There was a slight decline in yield from its lower middle market (“LMM”), middle market (“MM”), and Private Loan (“PL”) portfolios as shown in the following table.
MAIN remains a ‘Level 1’ dividend coverage BDC implying that it has the ability to increase and/or pay semiannual dividends. Historically, the company has grown its per-share economics year-over-year which is the primary driver for continued higher returns to shareholders. However, there was a slight decline this quarter partially due to slower portfolio growth and lower yields as discussed earlier.
As of June 30, 2019, there were seven investments on non-accrual status (up from six the previous quarter), which increased from the previous quarter to 1.5% (previously 0.9%) of the total investment portfolio at fair value and 4.4% (previously 3.6%) at cost.
Transition of Dividend Payments:
Over the next five years, MAIN will be transitioning its semiannual dividend into its monthly dividend which started in Q2 2019.
- The previous semiannual/supplemental dividends of $0.55 per year is being reduced incrementally and fully absorbed into its monthly dividends
- By the end of the transition period, the monthly dividend payout rate will be at least $0.05 per month higher than the current payout rate
- This transition will make the dividend policy easier to understand and allow all third-party stock price services “to correctly indicate and reflect our dividend yield”
- Management plans “to continue to grow our total annual dividends at a level consistent with what we have delivered in the past”
October 17, 2019: MAIN declared its semi-annual supplemental cash dividend of $0.24 per share payable in December 2019. This supplemental cash dividend is in addition to the previously announced regular monthly cash dividends that Main Street declared for the fourth quarter of 2019 of $0.615 per share, or $0.205 per share for each of October, November and December 2019. Including the regular monthly and supplemental cash dividends declared to date, Main Street will have paid $27.14 per share in cumulative cash dividends since its October 2007 initial public offering at $15.00 per share. Based upon the regular monthly dividend rate of $0.205 per share for the fourth quarter of 2019 and the current semi-annual supplemental dividend rate of $0.24 per share, Main Street’s current annualized run-rate for cash dividends is $2.94 per share. Main Street also expects that its Board of Directors will declare regular monthly dividends for the first quarter of 2020 during early November.
This information was previously made available to subscribers of Premium BDC Reports, along with:
- MAIN target prices and buying points
- MAIN risk profile, potential credit issues, and overall rankings
- MAIN dividend coverage projections and worst-case scenarios
- Real-time changes to my personal portfolio
To be a successful BDC investor:
- As companies report results, closely monitor dividend coverage potential and portfolio credit quality.
- Identify BDCs that fit your risk profile.
- Establish appropriate price targets based on relative risk and returns (mostly from regular and potential special dividends).
- Diversify your BDC portfolio with at least five companies. There are around 50 publicly traded BDCs; please be selective.