Main Street Capital Corporation Now Pays 7%
I usually avoid high-yield stocks, and for good reason.
Each day, I screen the market for new investment ideas. And
with a few mouse clicks, you can pull up dozens of high-yield securities. Right
now, for instance, 120 stocks now pay out more than 10%.
Those yields might sound great, until you look at the
companies behind them; they’re mostly junk. The companies behind these
high-yield stocks often fail to generate enough cash to cover their distributions.
In most cases, it’s only a matter of time before the payout gets slashed.
That said, sometimes you do find exceptions. Over the years,
I’ve found pockets of safe high-yield stocks buried in the trash. You just need
to shift through a lot of rubbage. And recently, I found one of these “pockets”
in the lending business: Main Street Capital Corporation (NYSE:MAIN).
Main Street’s business model is pretty straightforward to
wrap your head around: the company lends money to other businesses and collects
interest payments. The profit comes from the spread between the yield earned on
these loans and its cost of capital.
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