Why I Finally Added This Magnificent High-Yielding Monthly Dividend Stock to My Portfolio

My main financial goal is to grow my passive income to the point where it can fully fund my basic living expenses. Reaching that target will provide me with a high level of financial freedom. It will also give me more peace of mind knowing I won't have to worry if my income from working ever takes a big hit.

I work toward my goal by steadily investing more money in income-generating assets, like high-yielding dividend stocks. I'm always on the lookout for new passive income sources. One that I finally added to my portfolio is Main Street Capital (NYSE: MAIN). After overlooking the company for years, I've come to realize it's a magnificent passive income producer.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Getty Images.

Providing capital to help Main Street grow

Main Street Capital is a business development company (BDC). It provides debt and equity capital to lower-middle-market companies (those with revenues between $10 million and $150 million). It also provides loans to larger companies.

The BDC provides smaller companies with the capital they need to fund their operations and grow their businesses. It structures its investments to deliver three objectives: protecting its invested capital, delivering high recurring income, and providing opportunities for meaningful capital gains.

The company's secured debt investments generate a high yield. Its current portfolio has a 12.4% weighted average cash coupon. That supplies the company with recurring interest income to fund dividend payments. Meanwhile, its equity investments provide dividend income (63% of its holdings pay dividends) and additional upside potential as the value of its equity investments increases.

A very dependable dividend (and more)

As a BDC, Main Street Capital must distribute 90% of its income to investors via dividends to comply with IRS regulations (like a real estate investment trust, or REIT). It does that in two ways.

Main Street Capital pays regular monthly dividends. It sets the base dividend at a level that can be conservatively covered with its earnings. That enables the company to provide investors with significant comfort knowing they'll receive this recurring income stream. It has never suspended or reduced its dividend level since its initial public offering (IPO). It has paid a dividend either at or above the prior month's rate every month since its IPO.

While it hasn't increased its dividend level every year, it has steadily hiked the payout, growing it by 132% since late 2007. Main Street recently raised its monthly dividend by 2% and has increased it by 4.2% over the past year.

The company's dividend track record stands in stark contrast to that of other BDCs, with 78% of them having reduced their dividend rate at least once during that period or since their subsequent IPOs and 50% having cut their dividends multiple times. The sector's lackluster dividend track record is why I never looked into Main Street Capital until recently.

Main Street Capital also pays supplemental dividends to reach its target payout level, typically once per quarter. It has been paying $0.30 per share in supplemental dividends each quarter over the past year and a half in addition to its $0.255 monthly dividend. That puts its total dividend outlay at $1.065 per share over the past quarter, giving it an annualized yield of 8%.

These additional payments can vary depending on earnings and market conditions. For example, it paid less in supplemental dividends during the pandemic. Nevertheless, it's a nice additional income stream.

A magnificent passive income investment

I like to invest in companies that pay a high-yielding, steadily rising dividend because they should help me reach my passive income target sooner. Main Street Capital does that and more, thanks to the addition of its supplemental dividends. That's why I'm excited to have finally added this magnificent dividend stock to my portfolio. I plan to continue building my position as I have the cash to invest, because I believe Main Street can provide me with a lot of dividend income in the future.

Should you invest $1,000 in Main Street Capital right now?

Before you buy stock in Main Street Capital, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Main Street Capital wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $713,547!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $966,931!*

Now, it’s worth noting Stock Advisor’s total average return is 1,062% — a market-crushing outperformance compared to 177% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 23, 2025

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.