Main Street Capital (NYSE:MAIN) stands out in the BDC sector for its consistent ability to command a premium. While other BDCs have attempted to match its performance, none have achieved the same level of success. MAIN remains the top choice for investors seeking favorable dividend yields and long-term growth.
MAIN focuses primarily on lending to lower-middle-market companies with EBITDA ranging from $3 million to $20 million. Compared to other BDCs like BXSL, which lend to companies with nearly $200 million in EBITDA, MAIN may appear somewhat riskier. However, MAIN has demonstrated a strong track record, delivering steady results with minimal defaults and boasting a compounded return on equity of 13% over the long term.
Despite primarily lending to smaller companies, MAIN maintains a diversified portfolio that spans across various sectors of the economy. While it manages exposure to ultra-cyclical industries, its performance in the second quarter was impressive, with net investment income per share increasing by over 45% compared to the previous year. The company’s net asset value per share also saw a significant increase, further reinforcing its positive financial standing.
Acquiring MAIN at a discounted price may be challenging, as the price-to-tangible book value ratio seldom drops below 1.2X. However, considering the company’s current net asset value and potential upward drift, a good entry point could be around $34-$35 in the near future. While MAIN’s price-to-earnings ratio indicates relatively cheap valuation, the late stage of the economic cycle should also be taken into account. Overall, the valuation appears moderate despite impressive short-term results.
What We Like
While we currently view the common stock as a “hold,” MAIN’s exceptional long-term performance and credit metrics make it an attractive option. The company’s bonds, such as the July 2026 bonds, offer a high rate of return relative to the risk involved. These bonds present an opportunity for investors seeking an additional income stream, with a yield to maturity of 7.52%, significantly higher than comparable investment-grade options.
As we wait for recession metrics to materialize, we continue to search for high-quality, low-risk yield opportunities. MAIN’s 2026 bonds exemplify these characteristics, offering attractive returns. While this information is not financial advice, investors are encouraged to conduct their own due diligence and consult with professionals before making investment decisions.