Key Points
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Main Street Capital has paid a $0.30 per share supplemental dividend for 20 straight quarters.
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It also pays a monthly dividend, which it has increased 12 times since the end of 2021.
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One dividend provides income stability while the other acts as a bonus.
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Main Street Capital (NYSE: MAIN) has paid a $0.30-per-share supplemental dividend to investors each quarter in 2026. That's on top of its steadily rising monthly dividend. The business development company (BDC) currently pays $0.265 per share each month, 3.9% above the year-ago level.
Here's a look at this supplemental income stream, which makes the BDC an even more compelling passive income investment.
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Dual income streams
Main Street Capital's dividend policy aims to provide investors with a recurring monthly dividend they can bank on, along with significant additional value through supplemental dividends. It has paid supplemental dividends for 20 straight quarters, maintaining the current $0.30-per-share rate since early 2024. It has declared cumulative supplemental dividends of $8.74 per share since its 2007 IPO. The company pays supplemental dividends when its distributable net investment income (DNII) significantly exceeds its monthly dividend, or when it generates net realized gains and can maintain a stable or positive net asset value per share. It doesn't always make supplemental payments and has cut and suspended this additional dividend in the past.
The flexibility of the supplemental dividend enables Main Street Capital to pay a more secure monthly dividend. It sets this payment at a sustainable level. During the second quarter, its DNII covered the monthly dividend by 1.4 times. That gives it a comfortable cushion and room to grow. The BDC has grown its monthly dividend by 141% since its IPO, including 12 increases since the fourth quarter of 2021. It has never cut its monthly dividend since its IPO.
Income comfort plus a bonus
As a BDC, Main Street Capital must distribute 90% of its taxable net income to shareholders to remain in compliance with IRS regulations. Most BDCs pay one large dividend, typically quarterly, to reach their targeted payout level. If their income falls, which is common when interest rates decline, or the economy deteriorates, they need to reduce their dividends.
Main Street Capital's two-part dividend policy aims to address income sustainability issues while ensuring compliance. The base monthly dividend provides investors with significant comfort knowing that they can rely on this income stream. It grows steadily, which helps provide real income growth after inflation.
Meanwhile, the supplemental dividend serves two functions. It provides an outlet for the Main Street Capital to return excess taxable income to investors to remain compliant. That additional payment gives investors another meaningful income stream. It's not as durable as the monthly dividend, so they should view it as a bonus. However, there is some near-term visibility on this payment. The BDC has already announced it will pay a $0.30-per-share supplemental dividend in September. Additionally, CEO Dwayne Hyzak stated on the second quarter call that "we currently anticipate proposing an additional significant supplemental dividend payable in December 2026."
Get paid up to 16 times a year
Main Street Capital offers two distinct income streams. It pays a base dividend on the 15th of every month, built on almost two decades of dependability. It tops that off with a supplemental dividend payment near the end of each quarter. While that second payment isn't guaranteed, Main Street has paid these dividends for 20 straight quarters and expects that trend to continue. That's up to 16 dividend payments each year. Main Street Capital's unique policy and frequent payments make it an enticing passive income investment.
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Matt DiLallo has positions in Main Street Capital. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.