MAIN, a monthly-dividend BDC, gets 6% of the portfolio: dividend coverage is among the strongest of peers at about 133% and the monthly dividend has risen yearly since 2008. But its 8.16% yield includes supplemental dividends, so the more certain forward yield is 5-5.5%; supplements need high rates and no defaults.

What we can do is add one of the most popular monthly dividend paying companies in the financial sector of all time, and that is Main Street Capital, whose stock ticker is MAIN.

We will allocate about 6% of our portfolio, or $60,000, to it, and its current yield or dividend rate is about 8.16%.

This is important to remember and we will come back to it in a moment and I will show you why. We can also see that this means about $4,900 in income, which has a historical dividend growth rate of about 5%, and looking at Main Street Capital over the last 10 years, it looks pretty good.

That's about 59%, but you have to remember that most of this growth is coming from distribution. So if we do exactly that, you'll see that the total return over the last decade is over 239%.

That's incredibly impressive for a high-yield monthly dividend payer.

So if we do exactly that , you'll see that the total return over the last decade is over 239%. That's incredibly impressive for a high-yield monthly dividend payer.

Main Street Capital is a business development company or BDC. Basically what they do is they lend and lend to companies that have trouble getting conventional financing. This type of business model has both good and bad sides. Let's analyze it.

Let's analyze it. What we have now is a Dividendology BDC database. This is something I provide at dividendology.com. It contains important metrics that are not visible in most software for BDCs, yet are crucial for understanding how they are structured and how they may perform in the future.

So let's find Main Street Capital. We'll zoom in and scroll down and we can see Main Street Capital listed right here.

Here's what you'll notice now. This database lists a base dividend and a total dividend. This is because whenever these BDCs make excess income, they distribute it to shareholders. This is called a supplemental dividend.

For example, if we look at their investor presentation , we see the year 2008. Since 2008, we can see their monthly dividends as well as the supplemental dividends they have paid.

That means the monthly dividend has been increasing continuously every year.

This is incredibly interesting. However, supplemental dividends can vary at a much higher rate. For example, you can see that when we entered the extremely low interest rate environment from 2020 to 2022 , they were not paying any supplemental dividends.

It is also possible that many of the underlying companies in their loan portfolio were defaulting on their loans. But when we enter a higher interest rate environment, they start to produce significantly more supplemental dividends.

Why does this happen? Why do they produce higher supplemental dividends in a high interest rate environment ? In fact, the reason for this is that most of the loans these companies offer are variable rate loans.

That is, as interest rates increase, BDC income also increases.

So as long as the borrowing companies do n't default on their loans , higher interest rates can surprisingly be a net benefit for BDCs. We also see that Main Street Capital's core dividend coverage is one of the strongest among its peers, at around 133%.

So, what's important to remember about the dividend yield of about 8.16% that we mentioned at the beginning is this. What we need to understand is that this is stated including supplementary dividends.

So the actual dividend you may receive in the future is definitely much less than the base dividend. It is close to the 5 to 5.5% range. This is a hypothetical rate that you can assume to be more or less certain.

Meanwhile, supplementary dividends are not guaranteed. So it is essential to keep this in mind when analyzing any BDC.