Main Street Capital (NYSE: MAIN) is a popular business development company, or BDC, that lends to and invests in businesses that are cash flow positive and generate at least $10 million in revenue per year.

It currently has 191 companies in its portfolio and pays a 5.7% dividend yield.

The stock has become a favorite of income investors thanks to its juicy yield, its monthly payouts, and the fact that it has increased its annual dividend every year since 2011.

But will Main Street be good to Wall Street and maintain its payout?

To determine whether a BDC can afford its dividend, we look at its net investment income (NII). This is the money it generates from lending to and investing in other businesses, minus related expenses.

Main Street’s NII has been soaring.

In 2023, the company generated $339 million in NII, a 38% increase year over year and an 85% increase over 2021’s total.

Last year, Main Street Capital paid out $272 million for a payout ratio of 80% of its net investment income. By law, BDCs must return at least 90% of their earnings to shareholders, so it’s not unusual for them to pay out nearly all of their net investment income. (Keep in mind that net investment income is not the same as earnings.)

This year, I estimate Main Street will generate $359 million in NII and pay shareholders $283 million in dividends for a 79% payout ratio.

Note that the $283 million total payout includes the $0.30 per share special dividends the company paid in March and June.

Main Street has paid a special dividend for 11 consecutive quarters, and if we include the $0.30 special dividend in our yield calculation, the yield climbs from 5.7% to over 8%.

But as is the custom in Safety Net, my dividend safety rating is based on only the regular dividend, not the special dividend.

Considering the company is growing its NII, can afford its dividend, and has raised it every year for more than a decade, Main Street is one street you don’t need to take a detour around.

Dividend Safety Rating: A

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