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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that MDU Resources Group, Inc. (NYSE:MDU) is about to go ex-dividend in just 3 days. You will need to purchase shares before the 9th of December to receive the dividend, which will be paid on the 1st of January.
MDU Resources Group's next dividend payment will be US$0.21 per share. Last year, in total, the company distributed US$0.85 to shareholders. Looking at the last 12 months of distributions, MDU Resources Group has a trailing yield of approximately 3.4% on its current stock price of $25.21. If you buy this business for its dividend, you should have an idea of whether MDU Resources Group's dividend is reliable and sustainable. So we need to investigate whether MDU Resources Group can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately MDU Resources Group's payout ratio is modest, at just 45% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (65%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that MDU Resources Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, MDU Resources Group's earnings per share have been growing at 14% a year for the past five years. MDU Resources Group has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, MDU Resources Group has lifted its dividend by approximately 3.0% a year on average. Earnings per share have been growing much quicker than dividends, potentially because MDU Resources Group is keeping back more of its profits to grow the business.
The Bottom Line
Should investors buy MDU Resources Group for the upcoming dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.
So while MDU Resources Group looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for MDU Resources Group you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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