(By Amy Calistri) For income investors, monthly dividend
payers are the gold standard
. We depend on regular distributions to help with bills... and having to wait three months for our next payment isn't always practical.
Luckily, there are a lot of solid monthly payers to choose from. One of my favorites right now is Main Street Capital (NYSE: MAIN). MAIN is a business development company (BDC), which means it loans money to small, fast-growing private companies for interest and an equity stake. If a company in its loan portfolio gets bought out or goes public, MAIN gets a piece of the action.
By law, BDCs have to pay out 90% of their taxable income to their shareholders, making them an asset class custom-made for income investors. There are roughly two dozen BDCs that trade on major stock exchanges and only a handful pay dividends monthly.
Since I reinvest my dividends for my Daily Paycheck advisory, I prefer monthly payers. I can compound my growth slightly faster with more frequent dividend payers. And by reinvesting in incremental shares more frequently, I minimize my market risk -- since I'm reinvesting three times a quarter instead of once, I have less chance of reinvesting all my dividends into a market high.
I've owned MAIN in my Daily Paycheck portfolio since February 2010. Since that time, the company has increased its dividend four times. Right now MAIN pays a monthly dividend of $0.145 per share. At current prices, that gives a yield of roughly 7.5%. Better yet, including dividends, MAIN has returned 99.5% based on my initial investment.
That doesn't mean I think investors are late to the party. I particularly like MAIN now because the kinds of companies it invests in are, for the most part, domestically focused. And while the U.S. economy isn't growing like gangbusters, it is far more stable than other world economies right now. I also believe that the recently signed Jumpstart Our Business Startups (JOBS) Act will benefit businesses like MAIN. The new law makes it much easier for small companies to go public, making it more likely that MAIN and other BDCs will profit from their equity positions.
Risks to Consider: BDCs such as MAIN can be volatile. Given current market conditions, conservative investors may want to wait for a more stable environment before investing. There is certainly no harm in maintaining a comfortable cash position.
Action to Take --> Risk tolerant investors, however, can use this volatility to their advantage by placing a limit order 2% below the market price to try to catch MAIN on a dip. After all, when you can lock in a lower price, you lock in a higher yield.
(Editor's Note: Amy's portfolio holds up in down markets. Take the sell-off last year. In the month of August alone, the S&P 500 lost 5.3%. Despite all the turmoil, Amy's Daily Paycheck portfolio fell just 1.0% during the month. To learn more about Amy's strategy -- including a few more high-yield picks she likes -- you can visit this link to read more.)
-- Amy Calistri
Amy Calistri does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC owns shares of MAIN in one or more if its "real money" portfolios.
This article originally appeared on StreetAuthority
Author: Amy Calistri