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This is Why MDU Resources (MDU) is a Great Dividend Stock

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

MDU Resources in Focus

MDU Resources (MDU) is headquartered in Bismarck, and is in the Utilities sector. The stock has seen a price change of 25.85% since the start of the year. The energy, mining, construction and utilities company is currently shelling out a dividend of $0.21 per share, with a dividend yield of 2.56%. This compares to the Utility - Gas Distribution industry's yield of 2.72% and the S&P 500's yield of 1.27%.

Looking at dividend growth, the company's current annualized dividend of $0.85 is up 1.8% from last year. In the past five-year period, MDU Resources has increased its dividend 5 times on a year-over-year basis for an average annual increase of 2.59%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. MDU Resources's current payout ratio is 44%. This means it paid out 44% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for MDU for this fiscal year. The Zacks Consensus Estimate for 2021 is $2.07 per share, representing a year-over-year earnings growth rate of 6.15%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, MDU is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).


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