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Main Street Capital: Took A Licking And Kept On Paying

Apr. 04, 2021 1:06 PM ETMain Street Capital (MAIN)303 Comments


  • COVID hit all BDCs (Business Development Company) hard.
  • MAIN continued to pay its monthly dividend, and is again generating all the cash needed to pay it.
  • While the share price is well above the lows of last year, its current price is still a good value.
  • Looking for a helping hand in the market? Members of High Dividend Opportunities get exclusive ideas and guidance to navigate any climate. Learn More »

Little piggy banks on ascending stacks of coins
Photo by PM Images/DigitalVision via Getty Images


Source: MAIN Website

My last article on Main Street Capital (NYSE:MAIN) was from well before the COVID pandemic when MAIN had started to phase out the twice a year supplemental dividend payment it had been making for some

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This article was written by

PendragonY profile picture

PendragonY is a software engineer and has been developing applications for various industries for over 30 years. He has been managing his own investments for 40+ years. Formerly a value investor, he switched over to a more income based approach after the 2008 financial crisis

. PendragonY contributes to the investing group Learn more .

Analyst’s Disclosure: I am/we are long MAIN. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (303)

Office Rat profile picture
@BartAtTheRanch @Bekster @PendragonY @ALLDAY1 @kmr Holder Just want to thank you guys for the great information provided in the discussion. Makes me feel like an incompetent piker. :-) This is a big part of what makes the SA site so valuable.
BartAtTheRanch profile picture
@Office Rat

You are right and we need more of this sort of thing here - even the article writer who meant to write primarily about MAIN (which might come back one day) is now interested in OCSL!

ALLDAY1 profile picture
Having held MAIN for many years, I decided to sell it all and while while coming out with an overall slight profit versus a cost basis the return from dividends did make it a profitable venture, however when compared over a 3 month period versus other quarterly payers I start out with more dividend and in my view a greater growth potential. While I miss the monthly payments it is all about total return. and there are man that do it for the same money invested.

KMR holder profile picture
@ALLDAY1 I'm curious, did you sell because you believed you could get a better risk adjusted return deploying your capital elsewhere, or simply that you had a better chance of a higher total return going forward.
It sounds like you might be planning to put the money to work in other BDCs. Is that correct? If so which and how did you make your determination?
ALLDAY1 profile picture
@KMR holder
I had been slowly redeploying the funds elsewhere and had reduced it from 1250 to 500 earlier mainly to the slowness of returning to normal following the Pandemic and so while still waiting and looking at other dividend payers the balance of about .62 a quarter was small compared to some higher payers and some went to CSWC and some when to MO and some went to NNN. I am somewhat concerned about NHI as well but have made no decision on decision as of yet as I have 675 shares and have had it since 2015 but growth wise up 8%. Mostly it has to do with reviewing every holding and looking to improve it .

Argyll profile picture
I've been holding MAIN and reinvesting. My yield on cost is now 11%.
PendragonY profile picture
So MAIN again popped up a bit over my buy under price. I think it will pay to wait till it again drops below $40 to pick up more shares.
KMR holder profile picture
@PendragonY A point of interest, MAIN's NAV has increased YTD by 5.93%. Not bad for three months performance through 3/31/21. On the other hand its share price has risen by 25.59% through yesterday. That shows quite a lot of enthusiasm from investors.
Since MAIN's investment acumen hasn't increased that much over last year, I would think that the increase in price of their stock should have been more close to its rise in NAV.
@KMR holder

Just curious, how do you come to a +5.93% increase in NAV YTD?

Q4-20's NAV was $22.35, and Q1-21's NAV was $22.65.

That would be just a +1.34% increase in NAV.

Do you have a more current NAV than the end of Q1 in some SEC filing that you are going by?

Most all BDC's are showing anywhere from a modest increase in NAV to a healthy increase in NAV for Q1. I would call MAIN's +1.34% a little below average.

It is worth noting they did not benefit from issuing a lot of new equity at a huge premium in Q1-21. They only added about $3.5mm in new equity via their ATM in Q1 due to what they describe as their " excess liquidity position" during the quarter.
KMR holder profile picture
@Bekster the number comes from the column headed NAV Total Return (YTD), from the chart linked below. I think since it says total return the discrepancy may have something to do with figuring in their 5 monthly distributions somehow. The same number for OCSL is 5.26%. Of course OCSL has had only the one quarterly dividend.

Liquidors profile picture
Hell. I should have stuck with MAIN.

I truly didn't believe they would have recovered so quickly or maintain the dividend. In fact, the payout ratio is still over 100%. Not sure how they'll counter-act that fact, but maybe they will.

A good company. I chose other good companies last year, in this subsector and others, so it worked out well, but I probably should have believed in them. Their partial equity focus bolsters them in a sector-unique way.

Best of luck to shareholders. These shares will remain on my watchlist until an opportunity presents itself again.
PendragonY profile picture

DNII is now more than the dividend.
@Liquidors I suggest you consider buying when MAIN dips below $40.
Liquidors profile picture
@Dr. LouX

If it ever gets closer to NAV I probably will.
I hope they can continue their streak of div increases this year. Long MAIN.
Retire2020 profile picture
@PendragonY Great article. But MAIN is a hold for me now. All the best.
PendragonY profile picture

Thanks for reading and commenting. I have a big stake in MAIN so I am not buying huge blocks of shares at this price.
KMR holder profile picture
Why don't you do an experiment. Using all the inputs that you used for MAIN in your DDM calculator, simply insert $0.48 for the next 12 months dividends. What Buy Under Price with Margin of Safety does that produce?

I bet it would provide a number a whole lot higher than my NAV estimate for OCSL as of 3/31/21, $7.10. I certainly would pay that much for OCSL. I ran the numbers myself just now. See what you get.
KMR holder profile picture
@KMR holder
Why don't you do an experiment. Using all the inputs that you used for MAIN in your DDM calculator, simply insert $0.48 for the next 12 months dividends. What Buy Under Price with Margin of Safety does that produce?
I bet it would provide a number a whole lot higher than my NAV estimate for OCSL as of 3/31/21, $7.10. I certainly wouldn't pay that much for OCSL. I ran the numbers myself just now. See what you get.
PendragonY profile picture
@KMR holder

See, I don't follow OCSL and right now, based on the short time its management has been running the fund, I have no interest in buying it now. It isn't just a matter of plugging in some random numbers to do a valuation calculation, and I have no interest at this time in taking the couple of hours to determine what those numbers should be.

If you are fine with it, great.
KMR holder profile picture
By the way your link in the article refers me to a model that estimates a price based on earnings and earnings growth, not on dividends. Your whole valuation thesis for MAIN based on that is wrong.
Long time owner of MAIN and glad I stuck with it despite the big price drop and end of the special dividend last year. I did sell some last March and have not replaced it yet.
Good that you pointed out that MAIN usually sells for a big premium to NAV because the last SA author I read seemed to insinuate that it was the most overvalued BDC because it was selling for the most above NAV of any BDC and that was when it was still selling for $30!
PendragonY profile picture

$30 is a steal for MAIN. The premium looks high, but I bet that in the next earnings report we will again see an increase in NAV, so it isn't as high as it looks when looking at the last reported NAV.
Sartre profile picture
@PendragonY is it frothy yet? Is MAIN close to 100% above NAV? Long time holder but a blowout earnings will bring the NAV down to what do you think?
PendragonY profile picture

I don't expect NAV to come DOWN. Last quarter NAV looks to have increased over $1 a share. I expect that to continue.
Argyll profile picture
The two BDCs I hold are MAIN and CSWC. CSWC now pays a higher dividend than MAIN and just raised it. They pay the dividend quarterly as opposed to MAIN's monthly.
PendragonY profile picture

CSWC has always had a higher yield than MAIN. It is a smaller company and the market sees it as riskier. I like and own them both.
If MAIN was worth a +80% premium to NAV when they were raising their regular dividend every year and paying out two $0.25 specials each year, I find it incomprehensible that they are worth the same premium when they have not raised their dividend in over two years and those specials are long gone.

- - - - - - - -

What's different now from great run they had after the credit crisis?

1.) NII per share has stalled. The last time NII was under $0.60 was 3 years ago and their regular divvy was only $0.555 back then.

2.) Their string of years of net realized gains ended in 2017. For the last 3 years MAIN has reported net realized losses of (-$1.55mm), (-$20.8mm), and (-$116.48mm), and this is why the specials were discontinued.

- - - - - - - - -

MAIN is a fine BDC, but they are way over their ski tips at their current price.

The outlook for the sector is positive going forward and I agree MAIN will do better going forward than they have the last year or so. I'm talking fundamentally better, not their share price.

IMO, their share price is disconnected from their fundamental performance. Their share price is trading as if we were back in 2017.

It's pretty much impossible for a BDC to out-perform every year. MAIN hit a rough spot but that doesn't seem to have detoured investors.

MAIN will hit their best stride again at some point in the future, but they are trading as if that time is now, and it isn't.

It's hard to find much value in the sector at this time, and I sure don't see it it here.
PendragonY profile picture

First, it has been a little over a year since MAIN last raised the dividend. 2nd it is still a good 10% below where it was pre-COVID and has been higher with a lower NAV than it currently has.

And the premium is as high as it is because the NAV is growing and so is the DNII. The price is fine.

First of all the regular dividend was last raised in Q219, and since MAIN has declared their regular dividends thru Q221, that is 2 years, and counting, since their last regular dividend increase.

Second, why wouldn't MAIN be trading below it's pre-covid levels? NII & NAV are about (-6.7%) less than pre-covid levels. I'm using Q419 as the pre-covid metrics. And those declining numbers are in spite of the advantage of being able to issue new equity at a huge premium to NAV.

And third, NAV is not growing. It's less than it was 1,2, & 3 years ago. I guess MAIN "growing" is based on what time frame you want to use as "growing." Yes since the Q1-20 pandemic low, MAIN's metrics have been growing, but that would be true of the entire sector. Year over year those same metrics are lower, and actually those metrics are lower today than they were 3 years ago with MAIN.

And you haven't even commented on the 3 consecutive years of net realized losses. Think about that. MAIN has the ability to issue new equity at a huge premium (which benefits MAIN's NAV), yet NAV is lower than it was was 1, 2 & 3 years ago. What does that tell you?
KMR holder profile picture
@Bekster I think that an important point that you have not mentioned is how much lower MAIN's NII would have been if they had not sold as many shares at premium prices into the market through their ATM and DRIP programs over the last three years. Those additional shares will need to receive their monthly distribution payments going forward, increasing costs and reducing the amount of capital available to invest.
Could this not be a cause for a future distribution cut or at least causing MAIN to increase their leverage?
I also find it of interest that MAIN continues to need to pay more for their unsecured debt that ARCC. That premium tells me that institutional investors consider their debt more risky.
BartAtTheRanch profile picture

Thanks for the article. What does "DDM" stand for? Bart
PendragonY profile picture

Discounted Dividend Model. It is a method where the value of a stock is approximated by the sum of the time discounted dividends it is expected to pay.
BartAtTheRanch profile picture

Got it, thanks.
Thank you for the article. Main is my top BDC holding and one that I am not disappointed in. ARCC has also been good. WD
Dennis O profile picture
@wdchil they are my two also. I have tried to find a few more but seems when I like one the stars just are not aligned. I turned into a Cef hog. Life is Good. Dennis
Thanks for this article. I currently only own two BDCs, MAIN and HTGC. I don't worry too much about the premiums to NAV. Instead, I keep both at fixed allocations in my portfolio, so I'm always buying on dips and selling on pops. And of course, I pocket the dividends along the way.

There are not many "forever holds" in the BDC universe, but I think these two qualify.
Liquidors profile picture

I agree.

All the non-shit companies in this business are trading at very high premiums now... higher than usual. I'm starting to think this is a great image of overall market froth.

Broad market is one thing but if BDCs are trading extreme to NAV that lets me know something is up.
Think. Focus. Health. Wealth profile picture
"MAIN has over the years traded at a premium to NAV of around 60%."

"While the current price is well above the lows from last year, I think it is still a good value."

@pendragon- not sure I would call it a good value currently trading at a 78% premium.
But thanks for sharing your opinion

DelmarResearch profile picture
GAB, USA, and ASG are SPY like equity benchmarks for high yield stuff with FOF being one for equity/bond portfolio.

For a long time MAIN has been lagging all of them.

Since the author's last recommendation of it, MAIN's total return has been almost of half of that of GAB and FOF, and even much more significantly lower than those of USA and ASG.

Perhaps this time it is a better opportunity.
Dennis O profile picture
@DelmarResearch I also own everything you mentioned. We must be reading the same authors.
For those of you who think the yield a bit paltry, so why not just write some covered calls on the stock you own. Even at today's price you could sell the Sept 45 calls for .55 and that would add .107 to your monthly dividend of .205 and now your yield improves to 9.25% for the next 5 months??? Been doing this for years. You could also write the Sept 30 puts for an additional .55 and a total yield of 12% Worst case you sell your shares for $45 and/or buy more shares at $30.
kyle191 profile picture
@SUROVIC1 that is almost exactly what I am doing. But instead of the longer term options. I have been writing shorter term cash secured puts and covered calls.

I sold April16 $40 covered calls against my MAIN stock. It is likely it will finally get called away in the next few days.

I’m fine with the shares getting called away. They are in my opinion over valued past $36 a share. I’ll be writing cash secured puts at $35 to buy the MAIN shares back at a price I consider reasonable.
@kyle191 That's fine if you are happy taking the $40 and giving up the shares. The 35 puts pay a paltry .30 even going to June. If you rolled the April 40's to June 40's you can get .70/share plus 2 dividends at .205 for a total $1.11 for just 74 days which annualized give you 13.6%. Just what I did recently. Something to think about ....Your call.
PendragonY profile picture

"I sold April16 $40 covered calls against my MAIN stock. It is likely it will finally get called away in the next few days.
I’m fine with the shares getting called away. They are in my opinion over valued past $36 a share. I’ll be writing cash secured puts at $35 to buy the MAIN shares back at a price I consider reasonable."

I think your valuation is too low, but those are the rules I use when I write options. I don't write a call unless I am willing to have the shares called at that strike or write a put unless I am willing to buy the shares at the strike.
lonestar40 profile picture
I thought we were all in this for dividend GROWTH, not just yield current yield. Main ranks last at -1% 3-year dividend growth of my 30+ holdings and I recently sold 1/3 of my shares. One of your charts also shows the leveling of recent dividends.
PendragonY profile picture

Not sure what you are counting but 3 years ago the regular dividend was lower. Yes, when the economy shut down MAIN had to postpone dividend growth. It will resume.
Long MAIN. Thank you for the article.
PendragonY profile picture

Glad you liked the article.
ALLDAY1 profile picture
Well I went from 1250 shares to 500 shares and have no regrets, will I invest again probably not. Waited too long for recovery and am now just reaching it
But we all have our differences when investing .I can always sell and buy something else.
Wishing the best for all that hung in there

Income4ever aka Cyclenut profile picture
Sure you can always sell and buy something else...
The challenge is finding equal or better quality and performance at the right price. I'm up 137% holding Main until the company turns south or I go first.
Happy investing
MAIN has never sold at a good value and 1.7x NAV is simply too high a price to pay for MAIN. You could present an article with the same parameters replacing TSLX for MAIN and make much better arguments at its 1.2x NAV. Instead of consistent dividend increases the author describes for MAIN, TSLX investors have seen supplemental and special dividends far in excess of what MAIN has generated.

MAIN's 1.7x NAV is simply too high for any pure BDC underlying portfolio. NEWT's 1.7x NAV takes into account higher valuations for distinct business segments which would have higher valuations apart from being part of a BDC.
PendragonY profile picture

MAIN trades at a premium to NAV because it GROWS.
Sartre profile picture
@Brucejfern @PendragonY, I've owned MAIN for many years and I don't recall ever losing a dollar buying, trimming and buying again. I'm getting ready to trim MAIN again tomorrow by selling only my 28% gain and buying TSLX mentioned in your post Bruce. I might also trim a few other stocks and just get a full position of TSLX. If Main should ever retreat I will add to it immediately if the fundamentals are good.
PendragonY profile picture

I think MAIN is likely higher from here. In normal times it rarely goes betow $40.
I believe currently Main is over valued. It’s paltry dividend yield of 6.28% and 75% premium give clear indication to this.
PendragonY profile picture
@Be A Man

Paltry? And it isn't over-valued. Its at a pretty good price.
@PendragonY all of my BDCs that have significant cap gains also have dividend yields of 8.7- 10%. Yes, in Bdc land 6.28% is anemic.
PendragonY profile picture
@Be A Man

Those BDCs are far riskier than MAIN and don't have the record of consistent NAV and dividend growth.
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