{"id":46839,"date":"2025-08-05T10:46:11","date_gmt":"2025-08-05T10:46:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/46839\/"},"modified":"2025-08-05T10:46:11","modified_gmt":"2025-08-05T10:46:11","slug":"this-5-7-income-play-stays-strong-when-fed-and-markets-disagree","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/46839\/","title":{"rendered":"This 5.7% Income Play Stays Strong When Fed and Markets Disagree"},"content":{"rendered":"

Here\u2019s something most people forget about {}: The Fed does not call all the shots here.<\/p>\n

This means that, in the coming months, we may see a setup where the Fed\u2019s rate\u2014the \u201covernight\u201d rate at which financial institutions lend to each other\u2014and the (pacesetter for business and consumer loans) part company.<\/p>\n

Today we\u2019re going to dig into a \u201cstealth\u201d 5.7%-paying stock that\u2019s a perfect contrarian play on this situation. This one pays us every month, too.<\/p>\n

Fed Cuts \u2026 and Rates Soar!?<\/p>\n

I say that this \u201crate split\u201d is possible because, well, it\u2019s already happened in the last few months. Let\u2019s rewind to last September, when the Fed brought in its first |rate cut since 2020, after hiking rates during the 2022 {} spike and holding them steady since.<\/p>\n

The bond market, however, was having none of it. Even as the |Fed cut, 10-year Treasury rates soared, sending Powell a clear message: Slow your roll.<\/p>\n

Powell Gives the \u201cAll-Clear.\u201d Bond Market Says \u201cNot So Fast\u201d<\/p>\n

\"Long<\/p>\n

When the Fed cut rates last September, it ironically sparked a serious rally in long yields. The 10-year rate soared from 3.6% to 4.8%. That\u2019s a 33% move! Once Powell backed off, leaving the Fed\u2019s rate where it is now, the 10-year yield leveled off, as you can also see at the right side of the above chart.<\/p>\n

We could very well be in for a repeat of last September, and here\u2019s why: The Atlanta Fed\u2019s {} model has the economy clipping along at a 2.9% rate as I write this. That\u2019s solid growth. Plus we\u2019re heading into (ugh) another election cycle, which means more stimulus is likely.<\/p>\n

Meantime, option traders have the Fed cutting rates by at least 50 basis points by the end of the year:<\/p>\n

\"Fed-Fund-Odds\"<\/p>\n

Source: cmegroup.com<\/p>\n

Remember, too (and how could we forget?) that Powell\u2019s term ends in May, and he\u2019s likely to be replaced by someone who will work with the administration to lower rates.<\/p>\n

Our \u201cStealth\u201d Monthly Dividend Play on a Potential \u201cRate Split\u201d<\/p>\n

Put it all together and we could easily have a setup where the Fed cuts and reignites a rally in 10-year Treasury yields, a la 2024. One stock poised to profit is a business development company (BDC) called .<\/p>\n

Now first let me say that we\u2019d normally be cautious around BDCs in such a rate environment. That\u2019s because they lend money to small- and mid-sized businesses (think regional manufacturers, healthcare providers and the like), with MAIN going after firms with $25 million to $500 million in revenue.<\/p>\n

Moreover, a large slice of their loans tend to be floating-rate, and as such tend to move with the Fed funds rate (which, as we\u2019ve been discussing, looks set to decline from here).<\/p>\n

But even if a rapid fall in the Fed rate were to play out (and it isn\u2019t likely to be abrupt, as it\u2019s not just the Fed Chair, but the entire Open Market Committee, that has a say on rate moves), it\u2019ll likely be accompanied by still-strong economic growth.<\/p>\n

And that means more chances for BDCs to spur new loans\u2014with MAIN, as one of the leaders in the BDC market, likely to grab a healthy share. Moreover, while MAIN doesn\u2019t get specific, it did note in its latest investor presentation that its floating-rate loans \u201cgenerally\u201d include minimum \u201cfloor\u201d rates.<\/p>\n

The firm also says that 77% of its outstanding debt obligations are fixed rate, while on the lending side, 68% of its debt investments (i.e., loans outstanding) are floating-rate. That gives the company some built-in insulation on both sides of the balance sheet.<\/p>\n

About That 5.7% \u201cStealth\u201d Yield<\/p>\n

Then there\u2019s the company\u2019s dividend yield, which, if you look it up on a free stock screener, will show up at around 4.7%. But that\u2019s the forward yield, annualized based on the latest monthly payout. And it\u2019s likely an understatement.<\/p>\n

A better measure for stocks like MAIN, which issue regular special\u2014or as the company calls them, \u201csupplemental\u201d\u2014dividends, is the trailing-12-month yield. In the last 12 months, MAIN has issued three supplementals, making its trailing yield a much higher 5.7%.<\/p>\n

Moreover, over its 18-year history, this ironclad lender has never cut or suspended its payout, even during the pandemic or financial crisis. Check out this happy payout chart:<\/p>\n

MAIN\u2019s Dividend Keeps Pace, Backed By a Rock-Solid Loan Portfolio<\/p>\n

\"MAIN-Dividends\"<\/p>\n

Source: Income Calendar<\/p>\n

(And to be clear, those dips in the chart above aren\u2019t reductions\u2014they\u2019re those \u201csupplemental\u201d payouts I just mentioned, as are the spikes.)<\/p>\n

The BDC\u2019s payout gets an assist from the fact that, like real estate investment trusts (REITs), BDCs must pay 90% of their income in order to be exempted from corporate taxes by the federal government.<\/p>\n

And its portfolio is impressively diverse. Right now, MAIN holds investments across 189 companies. And its largest holding makes up just 3.2% of investment income. In fact, most investments represent less than 1%, spreading the risk nicely.<\/p>\n

Even better, these holdings span dozens of industries, and MAIN doesn\u2019t let any one industry dominate (none currently tops 10% of its investments). It\u2019s exactly the kind of broad diversification that helps manage potential portfolio heartburn.<\/p>\n

No wonder MAIN has trounced the BDC index fund since that fund\u2019s launch in 2013:<\/p>\n

MAIN Gives Us ETF-Style Diversification\u2014While Crushing ETFs<\/p>\n

\"MAIN-Total<\/p>\n

We\u2019re up 22% on MAIN since our buy in May 2025\u2014less than three months ago! That\u2019s good for 91% on an annualized basis. The stock is now above the buy-up-to-price I recommend in my Contrarian Income Report service. So we\u2019re not buying more now, but we are more than happy to keep holding and collecting MAIN\u2019s healthy payout.<\/p>\n

If you missed our May call, you do not want to miss our next buy window. I expect that one to open when the Fed restarts {}\u2014and that could come as soon as September. When the next opportunity shows up, I\u2019ll let Contrarian Income Report members know.<\/p>\n

Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks\/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, “7 Great Dividend Growth Stocks for a Secure Retirement<\/a>.”<\/p>\n","protected":false},"excerpt":{"rendered":"Here\u2019s something most people forget about {}: The Fed does not call all the shots here. This means…\n","protected":false},"author":2,"featured_media":25487,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[45,49,48,100],"class_list":["post-46839","post","type-post","status-publish","format-standard","has-post-thumbnail","category-markets","tag-business","tag-ca","tag-canada","tag-markets"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/46839","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=46839"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/46839\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/25487"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=46839"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=46839"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=46839"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}