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Summary

  • Gladstone Investment and Main Street Capital are both high-yielding asset management companies that pay monthly dividends.
  • Gladstone Investment offers a higher yield and cheaper valuation based on P/S ratio and price to book value, while Main Street Capital offers greater increases in income and book value.
  • Based on financial performance and future outlook, I feel that Main Street Capital is the better long-term investment of the two.

Overview

Gladstone Investment (NASDAQ:GAIN) and Main Street Capital (NYSE:MAIN) are both high-yielding asset management companies that pay monthly dividends. In this article, I will be taking a look at both in order to determine which is the better long-term investment.

Financial Performance

GAINMAIN
Profit Margin (trailing twelve months)10.63%88.49%

Return on Assets (trailing twelve months)

-0.38%8.06%
Return on Equity (trailing twelve months)-0.57%13.61%
Price to Book Value (trailing twelve months)0.931.56
Revenue (trailing twelve months)36.26M121.63M
EPS (trailing twelve months)-0.042.66
Free Cash Flow (quarterly)-22.26M-16.73M

Based on the table above, Main Street Capital appears to be in a much more stable and positive financial position compared to Gladstone Investment.

Current Valuation and Recent Trading Activity

Because of its negative earnings, Gladstone Investment doesn't have a P/E ratio available, but is currently trading at a P/S ratio of 5.64x and a price to book value of 0.93x. Main Street Capital currently has a P/E ratio of 11.80x, a P/S ratio of 9.79x, and a price to book value of 1.56x.

Dividend

Gladstone Investment currently pays a $0.06 monthly dividend that yields 8.93%, while Main Street Capital pays a $0.165 monthly dividend that yields 6.20%.

Looking at the chart below, you can see that Gladstone Investment has seen the higher dividend growth over the past five years.

GAIN Dividend Chart

GAIN Dividend data by YCharts

Future Outlook

While Gladstone Investment has had difficulty creating positive earnings, Main Street Capital has performed nicely and continues to maintain spillover taxable income that allows the company to payout semiannual supplemental dividends (which the company has done for two years now).

Main Street Capital has positioned itself to fairly consistently increase growth in income and book value. Looking at the chart below you can see how much the book value of Main Street Capital has grown, while Gladstone Investment has remained flat.

GAIN Book Value (Annual) Chart

GAIN Book Value (Annual) data by YCharts

I believe that Main Street Capital's diverse portfolio, a portfolio that includes investments across 167 companies and throughout its lower middle market, middle market, and private loan portfolios (according to the company's recent quarterly earnings call), will continue to perform well and that the stock in general will reward long-term shareholders with significant long-term dividend growth and price appreciation. As with all BDCs, there are associated risks with the market, but I feel that Main Street Capital poses less risk than others such as Gladstone Investment, which has a less stable financial position and has been unable to increase book value of the company during the past several years.

Conclusion

BDCs are strongly dependent on the economy. When the economy does well, BDCs generally perform well, but when the economy struggles (as it did in 2008/2009), BDCs often have a difficult time. Looking at the chart below, you can see that both Gladstone Investment and Main Street Capital struggled in 2008/early 2009. However, Main Street Capital performed exceptionally well since then, while Gladstone Investment has remained flat.

GAIN Chart

GAIN data by YCharts

I have not seen any evidence to suggest this trend won't continue. I believe that while the overall economy is doing well, both companies will perform reasonably well and when the economy falters, both companies will see stock prices drop. However, in terms of a long-term approach, I believe that Main Street Capital will continue to outperform Gladstone Investment (as it has done since late 2007).

Because of the company's strong financial position, significant dividend growth and high yield, and a valuable and diversified portfolio, I feel that Main Street Capital is a solid long-term buy for income investors. As always, I recommend individual investors perform their own research before making any investment decisions.

Source: Gladstone Investment Vs. Main Street Capital: Which High-Yielding Monthly Dividend Stock Should You Buy?