Main Street Capital's Dividend Projection For December 2016-February 2017 (Including Special Periodic Dividend For First Half Of 2017)

| About: Main Street (MAIN)

Summary

This article analyzes MAIN’s near-term dividend sustainability by performing three tests based on historical and projected future quarterly results.

The first two tests will analyze MAIN’s net ICTI and cumulative UTI which are based on IRC methodologies.

It is important for readers to understand the difference between MAIN’s NII and net ICTI regarding consistent, reliable dividend sustainability metrics and projections.

The third test will focus on the probability of MAIN continuing to provide special periodic dividends in the future. This includes a specific projection for the first half of 2017.

Summarized results from the three tests performed, including a projection for MAIN’s monthly dividend for December 2016–February 2017, are stated within the “Conclusions Drawn” section of the article.

Author's Note: This article is a detailed analysis of Main Street Capital Corp.'s (NYSE:MAIN) dividend sustainability. I have performed this analysis due to the continued number of readers who have specifically requested such an analysis be performed on MAIN at periodic intervals. For readers who just want the summarized conclusions/results, I would suggest to scroll down to the "Conclusions Drawn" section at the bottom of the article.

Focus of Article:

The focus of this article is to provide a detailed analysis with supporting documentation (via three tests) on the "near-term" dividend sustainability of MAIN. This analysis will be provided after a brief overview of MAIN's regulated investment company ("RIC") classification per the Internal Revenue Code ("IRC"). The first two tests will focus on MAIN's net investment company taxable income ("ICTI") and the company's undistributed taxable income ("UTI"). These two tests will be termed "TEST 1" and "TEST 2." The third test will focus on MAIN's unrealized appreciation on investments account and be termed "TEST 3." At the end of this article, there will be a conclusion based on the results obtained from TEST 1, TEST 2, and TEST 3 about the near-term dividend sustainability of MAIN. I will also provide my projection regarding MAIN's monthly dividend per share rate for December 2016-February 2017 and my projection regarding the company's special periodic dividend for the first half of 2017.

Understanding the tax and dividend payout characteristics of MAIN will provide investors with an overall better understanding of the business development company ("BDC") sector as a whole. From reading this article, investors will better understand how a RIC per the IRC comes up with the company's current dividend per share rate and specific signs when an impending increase or decrease should occur.

Discussion of MAIN's RIC Classification per the IRC:

As a BDC, MAIN elects to be treated as a RIC under "Subchapter M" of the IRC. To continue to qualify annually as a RIC, the IRC requires MAIN to meet certain "source-of-income" and "asset diversification" requirements. These requirements are beyond the scope of this article and will not be mentioned again. There is one specific provision which pertains to MAIN's dividend sustainability that should be discussed. As a RIC, MAIN is required to distribute to shareholders at least 90% of the company's ICTI and net capital gains (in excess of its capital loss carryforward balance; if applicable) in any given tax year in order to be eligible for the tax benefits allowed in regards to this type of entity. This is a very similar taxation treatment when compared to a real estate investment trust ("REIT") entity. If MAIN qualifies to be taxed as a RIC, the company avoids double taxation by being allowed to take a dividends paid deduction at the corporate level.

Several book to tax adjustments need to be determined to properly convert MAIN's earnings per share ("EPS") figure to the company's ICTI. Next, one would need to determine MAIN's net capital gains for the specified time period. Net capital gains consist of realized short-term net capital gains in excess of realized long-term net capital losses for each tax year. While most sector peers continue to have a material capital loss carryforward balance from prior years, MAIN currently is one of the rare BDC exceptions. In fact, MAIN has never had a capital loss carryforward balance dating all the way back to the company's initial public offering ("IPO"). This is an important (and positive) trend for readers to understand. When MAIN's ICTI and net capital gains are combined, this comprises the company's net ICTI which is also known as its annual distribution requirement ("ADR").

Regarding MAIN's ADR, the company has an additional option available if it fails to distribute 90% of its net ICTI within a given year. MAIN is allowed to carryover its net ICTI into the following year. However, MAIN must distribute the company's remaining net ICTI from the prior year through declared dividends prior to the filing of its tax return from the previous year. This is also known as the spillback provision. If MAIN fails to comply with this provision, the company will be declassified as a RIC per the IRC. If this were to occur, all of MAIN's net ICTI would be subject to taxation at regular corporate tax rates. As such, MAIN intends to distribute, at a minimum, 90% of the company's net ICTI during a tax year.

MAIN's Primary Factor Regarding Setting an Appropriate Dividend Per Share Rate - Intend to Cover the Company's ADR with Net ICTI:

To fully understand and accurately project a BDC's dividend sustainability, readers/other contributors must understand the subtle differences between a company's net investment income ("NII") and net ICTI figures/cumulative balances. As stated earlier, due to the fact MAIN continues to not have a capital loss carryforward balance, this is an extremely important concept for readers/other contributors to understand. As such, let us briefly discuss this distinction.

NII is a Generally Accepted Accounting Principles ("GAAP") figure which is based on the accrual method of accounting. ICTI and net ICTI are IRC figures which are generally based on the cash method of accounting (some exceptions to this notion [for instance payment-in-kind income] but I am keeping it simple for this discussion). Income and expense recognition of certain accounting transactions differ between GAAP and the IRC (book versus tax accounting treatments). A majority of MAIN's book to tax differences (either temporary or permanent in nature) consist of the following: 1) deferred financing fees on loans and deferred offering costs in relation to equity offerings; 2) pre-tax book income (losses) related to the Internal Investment Manager; 3) share-based compensation expense; and 4) income tax (provisions) benefits. There are several additional book to tax adjustments that MAIN periodically recognizes. However, for purposes of this article ("free to the public" analysis), further discussion of these additional adjustments is unwarranted. Let us now move on to MAIN's dividend sustainability analysis.

To test MAIN's primary factor, I believe it is necessary to analyze and discuss the company's historical quarterly net ICTI figures to see if the company's quarterly dividend distributions were being covered. This will lead to a better understanding of the overall trends regarding this particular metric and possible pitfalls that may arise in the future. This includes MAIN using the company's cumulative UTI balance on any quarterly/annual net ICTI overpayments. By using this methodology, I have consistently provided proven and accurate projections.

Table 1 below shows MAIN's net ICTI for the first and second quarters of 2016. Table 1 also shows MAIN's annual net ICTI for 2013, 2014 and 2015.

Table 1 - MAIN Net ICTI and Cumulative UTI Analysis (IRC Methodologies Based on Quarterly/Annual Timeframes)

Click to enlarge

(Source: Table created entirely by myself, partially using MAIN data obtained from the SEC's EDGAR Database)

All figures within Table 1 above are checked and verified, either directly or through reconciliations, to various spreadsheets and data from MAIN's supporting documentation (excludes all ratios). Table 1 will be the main source of information as TEST 1 and TEST 2 are analyzed below.

TEST 1 - Quarterly Net ICTI Versus Quarterly Distributions Analysis:

- See Red References "A, B, C, (B / A)" in Table 1 Above Next to the June 30, 2016 Column

Using Table 1 above as a reference, I take MAIN's quarterly/annual "net ICTI" figure (see red reference "A") and subtract this amount by the quarterly/annual "distributions from net ICTI" figure (see red reference "B"). If MAIN's red reference "A" is greater than the company's red reference "B," then MAIN technically had enough quarterly/annual net ICTI to pay out the company's dividend distributions for that particular period of time (both monthly and special periodic dividends where applicable). Any excess net ICTI left over, after accounting for MAIN's dividend distributions, is added to the company's cumulative UTI balance. This particular balance will be analyzed within TEST 2 later in the article. If MAIN's red reference "A" is less than the company's red reference "B," then the company technically did not have enough quarterly/annual net ICTI to pay out its dividend distributions for a particular quarter/year and must use a portion of the cumulative UTI balance to help with the overpayment.

TEST 1 - Analysis and Results:

Still using Table 1 above as a reference, MAIN had annual net ICTI of $90.8, $113.6, and $122.5 million for 2013, 2014, and 2015, respectively. In comparison, MAIN had annual dividend distributions of ($98.2), ($112.0), and ($131.4), respectively. When calculated, MAIN had an annual underpayment (overpayment) of net ICTI of ($7.4), $1.6, and ($9.0) million for 2013, 2014, and 2015, respectively (see red reference "(A - B) = C"). This calculates to an annual dividend distributions payout ratio of 108%, 99%, and 107% for 2013, 2014, and 2015, respectively (see red reference "(B / A)"). When combined, MAIN had an overpayment of net ICTI of ($14.7) million (rounded) during 2013-2015 which calculated to a three-year dividend distributions payout ratio of 105%.

In my opinion, most readers would interpret this was a minor overpayment of net ICTI. When looking at TEST 1 on a "standalone" basis, I believe MAIN's 2013-2015 minor overpayment of net ICTI could be perceived as a "cautionary" trend regarding the company's dividend sustainability. However, with that being said, I also believe this general interpretation would be a preliminary "rush to judgment." I would stress to readers/other contributors these payout ratios include all of MAIN's special periodic dividends that occurred during 2013-2015. This is very important to understand.

Moving to 2016, MAIN had net ICTI of $29.4 and $49.9 million for the first and second quarters of 2016, respectively. The notable increase in net ICTI for the second quarter of 2016 was mainly due to the sale of MAIN's equity investment in Samba Holdings, Inc. (Samba). As a result of this sale, MAIN reported a realized gain of approximately $28.4 million. In comparison, MAIN had dividend distributions of ($27.3) and ($42.0) million. MAIN's dividend distributions for the second quarter of 2016 were notably higher due to the company's special periodic dividend of $0.275 per share that was paid in June 2016. When calculated, MAIN had an underpayment of net ICTI of $2.1 and $7.9 million for the first and second quarters of 2016, respectively. This calculates to a dividend distributions payout ratio of 93% and 84%, respectively.

In my opinion, when looking at TEST 1 on a standalone basis, I believe readers should perceive MAIN's minor and modest underpayment of net ICTI for the first and second quarters of 2016, respectively as an encouraging sign for steady-slightly increasing monthly dividend per share rates through at least February 2017. In addition, I believe it was impressive MAIN had a modest underpayment of net ICTI during a quarter when a special periodic dividend was distributed. To take this dividend sustainability analysis a step further, let us now perform TEST 2.

TEST 2 - Cumulative UTI Coverage of Outstanding Shares of Common Stock Ratio Analysis:

- See Red References "E, G, (E / G)" in Table 1 Above Next to the June 30, 2016 Column

Once again using Table 1 above as a reference, I take MAIN's "cumulative UTI" figure (see red reference "E") and divide this amount by the company's "outstanding shares of common stock" figure (see red reference "G"). From this calculation, MAIN's "cumulative UTI coverage of outstanding shares of common stock ratio" is obtained (see red reference "(E / G)"). The higher this ratio is, the more positive the results regarding MAIN's dividend sustainability. Simply put, this ratio shows the amount of cumulative UTI covering the number of outstanding shares of common stock for that specified point in time. Since MAIN has continued to gradually increase the company's investment portfolio, recently through periodic "at-the-market" ("ATM") equity offerings, this ratio shows if the company has been able to increase its cumulative UTI balance by a similar proportion.

Side Note: In most BDC dividend sustainability analysis, I usually perform a test based on the company's "cumulative UTI coverage of quarterly dividend distributions" ratio (see red reference "(E / B)"). This ratio divides the company's cumulative UTI by the quarterly/annual dividend distributions. The higher this ratio is, the more positive the results regarding a BDC's dividend sustainability. However, while I was performing this test on MAIN, I noticed this ratio was "skewed" whenever the company distributed a special periodic dividend. In addition, this ratio will have a notable difference when using a quarterly versus annual timeframe. Therefore, I believe this specific test is less effective when measuring MAIN's dividend sustainability. As such, I replaced this test with the cumulative UTI coverage of outstanding shares of common stock ratio discussed above. With that being said, I still included the cumulative UTI coverage of quarterly dividend distributions ratio within Table 1 for BDC peer comparisons. However, this specific ratio will not be referenced again within this particular article.

TEST 2 - Analysis and Results:

Still using Table 1 above as a reference, MAIN had a cumulative UTI balance of $37.0, $38.6, and $29.7 million at the end of the fourth quarter of 2013, 2014, and 2015, respectively. Due to MAIN's three-year overpayment of net ICTI (as discussed in TEST 1), the company's cumulative UTI balance decreased from $44.4 million as of 12/31/2012 to $29.7 million as of 12/31/2015. MAIN had 39.9, 45.1, and 50.4 million outstanding shares of common stock at the end of the fourth quarter of 2013, 2014, and 2015, respectively. When calculated, MAIN had a cumulative UTI coverage of outstanding shares of common stock ratio of 0.93, 0.86, and 0.59 at the end of the fourth quarter of 2013, 2014, and 2015, respectively. Even though MAIN had a minor annual net ICTI underpayment for 2014 (as discussed in TEST 1), due to the fact the company continued to increase its outstanding shares of common stock throughout the year, this ratio slightly decreased during 2014. Even when considering the drop to this ratio, MAIN's cumulative UTI balance as of 12/31/2015 was still at a fairly attractive level, especially when compared to most BDC peers. In addition, considering MAIN distributed special periodic dividends during 2013-2015 (which most BDC peers did not declare), the company continued to have an attractive cumulative UTI balance (proportionately speaking).

Moving to 2016, MAIN had a cumulative UTI balance of $31.8 and $39.7 million at the end of the first and second quarters of 2016, respectively. Due to MAIN's minor and modest net ICTI underpayment for the first and second quarters of 2016 (as discussed in TEST 1), the company's cumulative UTI balance slightly increased from $29.7 million as of 12/31/2015 to $31.8 and $39.7 million as of 3/31/2016 and 6/30/2016, respectively. MAIN had 50.1 and 52.1 million outstanding shares of common stock at the end of the first and second quarters of 2016, respectively. When calculated, MAIN had a cumulative UTI coverage of outstanding shares of common stock ratio of 0.63 and 0.76 at the end of the first and second quarters of 2016, respectively. Even though this ratio notably decreased during 2015, MAIN was able to increase this ratio during the first half of 2016.

I believe MAIN's ratio as of 6/30/2016 was a nice "cushion" per se to have. Compared to what recently occurred with some higher-yield BDC peers like Apollo Investment Corp. (NASDAQ:AINV) and Medley Capital Corp. (NYSE:MCC) who had material dividend per share reductions in 2016, MAIN has continued to basically match net ICTI with dividend distributions. This includes accounting for MAIN's special periodic dividends.

In my opinion, considering TEST 2 on a standalone basis, the evidence provided above helps support MAIN's steady-slightly increasing monthly dividend per share rates over the past several years. TEST 2 also supports MAIN's special periodic dividends that were declared for 2013, 2014, 2015, the first half of 2016, and most recently the second half of 2016 (which was corrected projected in a previous analysis).

As important, as will be discussed in TEST 3, I am projecting MAIN will have a sufficient cumulative UTI balance "built up" during 2016 to declare a stable - slightly increasing special periodic dividend for the first half of 2017. I believe this should be seen as a positive trend. This is a good segue in transitioning to a more "forward-looking" dividend sustainability analysis regarding MAIN's special periodic dividend.

TEST 3 - Cumulative Unrealized Appreciation Coverage of Outstanding Shares of Common Stock Ratio Analysis:

- See Red References "H, I, J, G, (J / G)" in Table 2 Below Next to the June 30, 2016 Column

To begin TEST 3, let us first take a look at the information provided in Table 2 below.

Table 2 - MAIN Cumulative Unrealized Appreciation Coverage of Outstanding Shares of Common Stock Ratio Analysis (Based on Quarterly/Annual Timeframes)

Click to enlarge

(Source: Table created entirely by myself, partially using MAIN data obtained from the SEC's EDGAR Database [link provided below Table 1])

Using Table 2 above as a reference, I take MAIN's "cumulative unrealized appreciation on investments" figure (see red reference "H") and subtract from this amount the cumulative unrealized appreciation in regards to MAIN's external investment manager, Main Street Capital Adviser I, LLC (MSC Adviser I; see red reference "I"). This calculates to MAIN's "cumulative unrealized appreciation on investments (less external investment manager)" figure (see red reference "(H - I) =J").

Side Note: MSC Adviser I was formed in November 2013 as a wholly-owned subsidiary of MAIN to provide investment management and other services to external parties. For rendering these services, MSC Adviser I receives fee income. Readers should not confuse this specific portfolio company with the fact that MAIN is internally managed. In my professional opinion, it is currently a very low probability MSC Adviser I will have a realized gain in the near future due to the underlying nature of this wholly-owned subsidiary. As such, for a more accurate projection of MAIN's future special periodic dividends, I exclude the cumulative unrealized appreciation from this specific portfolio company.

Table 2 then divides this amount by the company's "outstanding shares of common stock" figure (see red reference "G"). From this calculation, MAIN's "cumulative unrealized appreciation coverage of outstanding shares of common stock ratio (less external investment manager)" is obtained (see red reference "(J / G)"). The higher this ratio is, the more positive the results regarding MAIN continuing to declare future special periodic dividends. Basically, this ratio shows the amount of cumulative unrealized appreciation covering the number of outstanding shares of common stock for that specified point in time. Since MAIN has continued to gradually increase the company's investment portfolio, recently through periodic ATM equity offerings, this ratio shows if the company has been able to increase its cumulative unrealized appreciation by a similar proportion.

I believe this is a good test to perform because MAIN's unrealized appreciation (depreciation) will eventually become a realized event. However, one unknown variable in this equation is time. It cannot be determined if MAIN will realize a particular investment gain (loss) during the next quarter, next year, or further out on the time horizon. However, it is a general "rule of thumb" that the larger a company's cumulative unrealized appreciation balance becomes, the greater the probability of realized gains occurring at some point in the future. In the end, management has the ultimate decision when to realize certain investments within MAIN's portfolio. With that being said, I believe MAIN considers this notion when determining when to "monetize" certain portfolio investments. As such, I believe TEST 3 is a good indicator of possible future realized gains which will directly lead to MAIN being able to continue to pay special periodic dividends.

TEST 3 - Analysis and Results:

Still using Table 2 above as a reference, MAIN had a cumulative unrealized appreciation balance of $100.7, $82.7, and $101.4 million at the end of the fourth quarter of 2013, 2014, and 2015, respectively. After backing out the cumulative unrealized appreciation attributable to MSC Adviser I, MAIN had a cumulative unrealized appreciation balance (less the external investment manager) of $99.6, $67.1, and $74.1 million, respectively. MAIN had 39.9, 45.1, and 50.4 million outstanding shares of common stock at the end of the fourth quarter of 2013, 2014, and 2015, respectively. When calculated, MAIN had a cumulative unrealized appreciation coverage of outstanding shares of common stock ratio (less the external investment manager) of 2.50, 1.49, and 1.47 at the end of the fourth quarter of 2013, 2014, and 2015, respectively. Even though MAIN's ratio notably decreased during 2014 and slightly decreased during 2015, this ratio was still at a very attractive level as of 12/31/2015 (especially when compared to most sector peers who had deficit balances).

Moving to 2016, MAIN had a cumulative unrealized appreciation balance of $79.2 and $67.1 million at the end of the first and second quarters of 2016, respectively. After backing out the cumulative unrealized appreciation attributable to MSC Adviser I, MAIN had a cumulative unrealized appreciation balance (less the external investment manager) of $51.5 and $40.1 million at the end of the first and second quarters of 2016, respectively. MAIN had 50.8 and 52.1 million outstanding shares of common stock at the end of the first and second quarters of 2016, respectively. When calculated, MAIN had a cumulative unrealized appreciation coverage of outstanding shares of common stock ratio (less the external investment manager) of 1.01 and 0.77 at the end of the first and second quarters of 2016, respectively. As such, this ratio notably decreased during the first and second quarters of 2016. Regarding the decrease in the first quarter of 2016, this was mainly due to the heightened volatility in credit markets during the second half of 2015-the first half of the first quarter of 2016. Simply put, this event put added pressure on spreads/valuations for a majority of lower middle market ("LMM") and middle market ("MM") debt investments. Regarding the decrease in the second quarter of 2016, this was mainly due to the unrealized to realized reclassified gain of Samba (discussed earlier) partially offset by net unrealized appreciation within MAIN's investment portfolio.

With all things considered, MAIN still had an attractive cumulative unrealized appreciation coverage of outstanding shares of common stock ratio as of 6/30/2016 (especially when compared to most sector peers who continued to have large deficit balances). However, it should still be pointed out this balance has notably decreased over the prior several years (2.50 as of 12/31/2013 versus 0.77 as of 6/30/2016). It should also be noted a majority of LMM/MM debt investments continued to experience a nice "rebound" in prices during the third quarter of 2016 (spreads tightened; albeit less of an increase when compared to the second quarter of 2016). This is an important future indicator to monitor.

It should also be mentioned on 10/6/2016, MAIN disclosed to the public one of the company's portfolio companies Travis Acquisition, LLC (Travis) was sold to an outside private equity group. In conjunction with this sale, Travis repaid its debt obligation to MAIN. In addition, MAIN exited the company's equity investment in Travis for a realized gain of approximately $17.9 million during MAIN's fourth quarter of 2016. Simply put, this notable realized gain helped support the company's recently declared special periodic dividend for the second half of 2016. This realized gain will also help provide a cushion for MAIN's next special periodic dividend likely to be declared in April 2017 and paid in June 2017. I believe this event should be seen as a positive trend regarding MAIN's future dividend sustainability.

Conclusions Drawn:

To sum up the information in this article, three dividend sustainability tests were performed on MAIN. The first two tests were based on MAIN's net ICTI and cumulative UTI which are based on IRC methodologies. TEST 1 provided the following information in regards to MAIN's net ICTI payout ratio for 2013, 2014, 2015, the first quarter of 2016, and the second quarter of 2016, respectively:

MAIN's 2013, 2014, and 2015 Annual Net ICTI Payout Ratio: 108%, 99%, and 107%

MAIN's Q1 and Q2 2016 Net ICTI Payout Ratio: 93% and 84%

I believe readers should perceive MAIN's minor and modest underpayment of net ICTI for the first and second quarters of 2016, respectively as an encouraging sign for steady-slightly increasing monthly dividend per share rates through at least February 2017. In addition, I believe it was impressive MAIN had a modest underpayment of net ICTI during the second quarter of 2016 when a special periodic dividend was distributed.

To gain further clarity, TEST 2 was then performed which analyzed MAIN's cumulative UTI balance. TEST 2 provided the following information in regards to MAIN's cumulative UTI coverage of outstanding shares of common stock ratio at the end of 2013, 2014, 2015, the first quarter of 2016, and the second quarter of 2016, respectively:

MAIN's Cumulative UTI Coverage of Outstanding Shares of Common Stock Ratio as of 12/31/2013, 12/31/2014, and 12/31/2015: 0.93, 0.86, and 0.59

MAIN's Cumulative UTI Coverage of Outstanding Shares of Common Stock Ratio as of 3/31/2016 and 6/30/2016: 0.63 and 0.76

In my opinion, considering TEST 2 on a standalone basis, this evidence helps support MAIN's steady-slightly increasing monthly dividend per share rates over the past several years. TEST 2 also supports MAIN's special periodic dividends that were declared for 2013, 2014, 2015, and the first half of 2016. I also correctly projected, in a prior MAIN article, a net increase in this ratio during the first and second quarters of 2016. I believe this should be seen as a positive trend.

When looking at the results from TEST 1 and TEST 2, I have concluded the probability of MAIN being able to maintain the company's monthly dividend per share rate in its next set of dividend declarations remains high (80%).

As such, I am projecting MAIN will declare the following monthly dividends for December 2016-February 2017:

Dividend for December 2016 (Paid in January 2017): $0.185 per share

Dividend for January 2017 (Paid in February 2017): $0.185 per share

Dividend for February 2017 (Paid in March 2017): $0.185 per share

Next, TEST 3 provided the following information in regards to MAIN's cumulative unrealized appreciation coverage of outstanding shares of common stock ratio (less the external investment manager) for 2013, 2014, 2015, the first quarter of 2016, and the second quarter of 2016, respectively:

MAIN's Cumulative Unrealized Appreciation Coverage of Outstanding Shares of Common Stock Ratio (Less External Investment Manager) as of 12/31/2013, 12/31/2014, and 12/31/2015: 2.50, 1.49, and 1.47

MAIN's Cumulative Unrealized Appreciation Coverage of Outstanding Shares of Common Stock Ratio (Less External Investment Manager) as of 3/31/2016 and 6/30/2016: 1.01 and 0.77

When looking at the results from TEST 2 and TEST 3, I have concluded the probability of MAIN being able to declare a special periodic dividend for the first half of 2017 is high (80%). This projection/probability is mainly due to the realized gain of approximately $17.9 million in regards to the recent sale of Travis.

As such, I am projecting MAIN will declare in April 2017 (a future event) the following special periodic dividend to be distributed in June 2017:

Special Periodic Dividend for the First Half of 2017 (Likely To Be Distributed June 2017): $0.275-$0.30 per share

MAIN continues to have one of the most attractive cumulative unrealized appreciation balances in the sector, even with the recent notable decrease to this specific balance. A prior BDC comparison article I wrote provided some recent, more generalized dividend sustainability metrics regarding eleven BDC peers (including MAIN). For additional analysis related to this topic, I refer readers to the following article:

Prospect Capital Corp.'s NAV, Dividend, And Valuation Compared To 10 BDC Peers (Post Calendar Q2 2016 Earnings) - Part 2 (Including Dividend Sustainability Probabilities For All Companies)

My BUY, SELL, or HOLD Recommendation:

From the analysis provided above, including additional factors not discussed within this article, I currently rate MAIN as a SELL when the company's stock price is trading at or greater than a 55% premium to the mean of my projected NAV as of 9/30/2016 range, a HOLD when trading at greater than a 40% but less than a 55% premium to the mean of my projected NAV as of 9/30/2016 range, and a BUY when trading at or less than a 40% premium the mean of my projected NAV as of 9/30/2016 range. These premium to NAV percentage ranges are unchanged when compared to my last MAIN article (approximately three months ago). My projected NAV as of 9/30/2016 range is $21.10-$21.70 per share.

As such, I currently rate MAIN as a SELL (however, close to my HOLD range). My current price target for MAIN is approximately $33.20 per share. This is currently the price where my SELL recommendation would change to a HOLD. This price target is a ($0.45) per share decrease when compared to my last MAIN article. My current re-entry price for MAIN is approximately $29.95 per share. This is currently the price where my recommendation would change to a BUY. This re-entry price is also a ($0.45) per share decrease when compared to my last MAIN article.

My current SELL recommendation is due to the fact MAIN continues to have a stock price valuation that, in my opinion, is an excessive premium to the company's BDC peers. Even though I believe MAIN's dividend sustainability is currently high (focus of this particular article), I believe the company's stock price valuation already considers this notion and then some. The minor decrease in my price target ranges is mainly associated with MAIN's NAV underperformance during the second quarter of 2016 when compared to some higher quality BDC peers. This includes an underperformance when compared to (but not limited to) Ares Capital Corp. (NASDAQ:ARCC), Golub Capital BDC Inc. (NASDAQ:GBDC), Solar Capital Ltd. (NASDAQ:SLRC), and NEWTEK Business Services Corp. (NASDAQ:NEWT).

Final Note: Each investor's BUY, SELL, or HOLD decision is based on one's risk tolerance, time horizon, and dividend income goals. My personal recommendation will not fit each reader's current investing strategy. The factual information provided within this article is intended to help assist readers when it comes to investing strategies/decisions.

Disclosure: I am/we are long NEWT.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I currently have no position in MAIN, AINV, ARCC, GBDC, MCC, or SLRC.