BDC Update: Main Street Capital
August 8, 2022
The IIQ 2022 results are in for Main Street Capital (MAIN) and we're compelled to increase our projections for total distributions in 2022 and 2023. That's because the BDC fired on almost all cylinders where earnings and payouts were concerned through the first half of the year. What's more, the prospects for the second half of the year look even better, even if NAV Per Share continues to drop. There's a chance that may not happen if the recent rally in the debt markets continues, notwithstanding a possible recession not very far away.
We had been projecting MAIN would pay out $2.7000 in 2022 in both regular and quarterly "specials". In 2021, the BDC paid out $2.5750 in this way. However, MAIN has been outperforming and has already paid or announced $2.7450 in distributions this year. Another $0.1000 special will be coming shortly for the IIIQ 2022 and we're assuming at least another $0.1000 in the final quarter, for a total of $2.9450. (That final payout could be higher and bring the 2022 number to $3 a share or above).
In 2023, because of ever higher interest rates pushing up income, we're assuming the regular monthly distribution of $0.2200 will average $0.2300, or $2.7600. Add to that $0.3500 in "specials" and you've got our new projection of $3.1100.
For the moment we've not finagled with our projections years 3-5, with the final distribution in 2026 set at $3.3004. Also, we're not messing with the huge 17.7x terminal price to dividend multiple that causes the Target Price for MAIN to be $58.42. Admittedly, both the dividend increase and the multiple are high - probably the highest out there, but the numbers are based both on historical patterns and underlying fundamentals.
On Everyone's Dance Card
Sadly, MAIN is hugely popular and the stock has shot up 30% since falling to a 2022 low in mid June. Despite our aggressive long term targets for the dividend and multiple, the total return over 5 years comes to just 67% or 13% per annum. Much of that should come from an assumed 31% price appreciation.
Not Enough. Right Now
That's too low a return to make MAIN an interesting investment right now. We remember, though, that investors can be fickle. In a few weeks during the pandemic, the stock dropped (69%). Then there was a longer slump more recently - between November 2011 and that low in mid June, which took MAIN down by (24%). Who's to say if investors don't change their minds again ?