Main Street Capital: Invest along with management

The CEO and president are the two largest shareholders in this high-yielding investment firm.

By TheStockAdvisors Mar 2, 2012 3:06PM
Image: CEO (© Photodisc/Getty Images)By Mark Skousen, High-Income Alert

It's rare to find a stock with a high yield, growing dividend, a very solid management team and bright prospects for the future. But that favorable situation is exactly what Main Street Capital (MAIN) offers.

Based in Houston, Main Street makes equity investments and loans money to small- and mid-sized companies. Its dividend is paid monthly. It has never been cut since the company was founded in 1997. The stock currently yields 7%.

Even during the recent financial crisis, the dividend remained constant. And it has been raised since then.

Main Street is well diversified. Of the 74 companies in its portfolio, the largest sectors are commercial services and suppliers, which compose 12% of its holdings. Energy and media each make up 9% of Main Street’s portfolio. Typically, these businesses are cash flow positive with revenue between $10 million and $100 million.

Geographically, 43% of its companies are located in Texas, Oklahoma, Arkansas, Louisiana, New Mexico and Arizona. Another 29% of the companies are in the West, including California.

Main Street is well positioned to take advantage of new opportunities. It has plenty of cash and marketable securities. And earnings here are top-notch. Last quarter, earnings jumped 32% on a 90% increase in revenue. Operating margins are a whopping 80%. And management is earning a healthy 18% return on equity.

Management is also accumulating the stock. Main Street's management team and directors own more than 15% of the company. CEO Vince Foster alone owns 1.3 million shares, or 4.5% of the total shares outstanding.

The company's President Todd Reppert owns another 700,000 shares. These two executives are the largest shareholders in the company. Foster earns roughly $1.9 million in dividends per year on his holdings. That's nearly five times as much as his paycheck. Reppert sees about $886,000 in annual dividends, roughly four times his salary.

The management team's interests are clearly aligned with shareholders. If the business does well, and management is able to increase the dividend, that puts more money directly back into their pockets. That's the way it should be.

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