1 Incredible High-Yielding Monthly Dividend Stock I Plan to Buy in June for Passive Income

My ultimate financial goal is to become financially independent. My target is to grow my passive income to the level where it can cover my basic living expenses. That would eliminate the stress of having to work to pay my bills.

I'm always on the lookout for new investments that generate passive income. One that I've surprisingly overlooked for years is Main Street Capital (NYSE: MAIN). However, after taking a closer look at the company, I've realized it's an incredible income stock. That's why I now plan to buy shares of the high-yielding monthly dividend stock this June.

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Getting to know Main Street Capital

Main Street Capital is an investment firm that provides debt and equity to lower middle market companies, specifically those with $10 million to $150 million in annual revenue. It also provides debt capital to larger middle-market companies, up to $1 billion in annual revenue. These companies use this capital to support management buyouts, recapitalizations, growth, refinancing, and acquisitions. Main Street provides companies with a "one-stop" financing solution to help meet their funding needs.

The company operates as a business development company (BDC). The IRS requires a BDC structured as a regulated investment company, which is Main Street Capital's structure, to distribute at least 90% of its taxable income to shareholders to avoid paying income taxes at the corporate level. That makes these entities similar to real estate investment trusts (REITs) or master limited partnerships (MLPs).

Given that requirement, Main Street Capital pays an attractive dividend. It currently pays $0.255 per share each month, or $3.06 annualized. With its share price recently around $58 apiece, the company has a 5.2% dividend yield based on its monthly payment level. In addition to those monthly dividend payments, Main Street Capital has routinely paid supplemental cash dividends to ensure it reaches the 90% required payout level. The company recently declared a $0.30 per share supplemental dividend. If we annualize that rate and add it to the monthly payout, Main Street's yield is over 7%.

An incredible base income stream

Given the payout requirements of BDCs and the risks of providing capital to smaller companies, many of these companies don't have good records of paying reliable dividends. Their payouts can rise and fall, sometimes significantly, based on their earnings.

What surprised me about Main Street Capital was the company's incredible record of paying monthly dividends. Since coming public in 2008, the company has never suspended or reduced its monthly dividend payment. Instead, it has increased its monthly payment level by 132% during that period. The company will hold its payout flat during recessions for extra wiggle room while growing it when the economy starts expanding again. It has increased its dividend by 2% over the past quarter and 4.1% over the last year. A stable and steadily rising income stream is exactly what I want because it can provide me with bankable income that can grow alongside my expenses.

On top of that stable and growing monthly dividend, Main Street Capital routinely declares supplemental dividends. Since its IPO, the company has declared $7.24 per share of supplemental dividends. Add in the company's recurring monthly dividend, and it has paid a total of more than $45 in dividends since coming public. That's over three times its IPO price of $15 per share.

The company designed its dividend policy to provide investors with significant comfort through a bankable monthly dividend. The current payment level is well below its distributable net investment income, with $0.75 in monthly dividends paid in the first quarter compared to $1.07 per share of distributable income. That gives it the flexibility to provide investors with additional income by routinely increasing its monthly payout and paying supplemental dividends.

Everything I want and more

Main Street Capital has done an incredible job paying dividends over the years. It pays a very bankable monthly dividend. On top of that, it routinely pays supplemental dividends and increases its monthly payout. That rock-solid recurring income stream and upside potential are why I'm excited to add Main Street Capital to my income portfolio this month. I think it can supply me with a lot of income in the future, which should help me reach my goal of becoming financially independent even faster.

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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.