One Of My All-Time Favorite Special Dividend Payers
Did you know that dozens of companies pay dividends that go unreported each quarter? By unreported, I’m not talking about some secret way of transferring cash to a select group of well-connected insiders.
These extra payments are dished out openly and uniformly to all shareholders. But they are irregular and non-recurring. So by definition, they are considered “special,” not ordinary. As such, these distributions sometimes aren’t reflected in the yields quoted on popular financial sites like Yahoo or Morningstar.
But trust me, the cash is just as green and spends just the same as any other dividend. And these special payments typically come in much bigger denominations, often 10 to 20 times larger than the firm’s regular quarterly dividend.
There’s no special trick or complicated system to capturing these dividends — you just have to know where to look.
Occasionally, you will hear about a company randomly choosing to pay a special dividend. But some have a policy of regularly returning surplus earnings in the form of a year-end cash bonus. The bigger the profit, the bigger the special dividend…
In a previous article, I promised to share more about special dividends. So today, I want to tell you about one of my all-time favorites. In fact, we’ve owned it in our High-Yield Investing premium portfolio for years…
A 7% Yield, Paid Every Month (Plus “Extra” Bonus Dividends)
Main Street Capital (NYSE: MAIN) is the only company I know of that regularly makes 14 dividend payments a year — 12 regular monthly payments and a pair of special distributions in June and December.
Main Street specializes in lending capital to mid-sized private businesses. The company has about 200 positions in its portfolio, many of which it also owns an equity position. The average weighted yield on these loans (split into three categories) ranges from 8.1% to 11.8%.
As a business development company (BDC), Main Street provides critical financing to help private businesses expand. The latest investment is a $34 million senior secured loan to Elgin Industries, a top engine parts supplier to vehicle manufacturers. Elgin has been in business for over a century and boasts a portfolio of 45,000 unique components.
Aside from the loan, Main Street will also be taking an equity position in Elgin that can yield some capital appreciation later, sweetening the already robust income stream.
On that front, Main Street continues to out-earn its sizeable dividend distribution. The excess is characterized as undistributed taxable income, and that bucket is occasionally dumped and spilled out to shareholders.
We’re about to get one of those payments. The board just approved a supplemental bonus dividend of $0.10 per share payable on December 28 to shareholders of record on December 20. That’s in addition to the regular monthly payments of $0.225 per share scheduled for next quarter, an increase of 4.7%.
Since going public at $15 per share in 2007, Main Street has never once reduced its monthly payout (even during the 2008 financial crash). It has also disbursed more than twice that amount to shareholders, dishing out cumulative dividends of $35.80. And it has delivered a total return of nearly 700%.
Source: MAIN Summary Fact Sheet
(Remember, you’ll notice that sites like Yahoo might quote a different yield. Sometimes that figure only includes the regular dividends and doesn’t reflect the special payments. Or they may count the previous 12 payments, regardless of whether they were “special” or “regular”.)
Remember, as a business development company (BDC), the company is legally obligated to pass along 90% of its income to shareholders. At the current rate, investors who buy today can expect a total of $2.70 per share in regular monthly dividends this year. That’s good for a robust yield of 7.3% — even before you consider the special distribution.
Action To Take
Few reputable companies offer yields that are three to four times the S&P 500 average. And most that do are shaky at best. But this business development company has the financial clout to make these outsized payments.
While the primary appeal of MAIN is the dividend, the stock itself has performed quite well (as you can see in the chart above). In fact, including dividends, we’re sitting on a total return of nearly 100% since adding it to our High-Yield Investing portfolio in November 2015. Meanwhile, the S&P 500 has returned about 84%.
With another dividend hike on the way, MAIN remains a strong candidate for any income investor’s portfolio.
In the meantime, if you want to know about my absolute favorite high-yield picks, you need to check out my latest report…
In it, you’ll find 5 “Bulletproof Buys” that have weathered every dip and crash over the last 20 years and STILL handed out massive gains. And each one of them carries high yields, with dividends that rise each and every year. Go here to check it out now.