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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
MDU Resources in Focus
Headquartered in Bismarck, MDU Resources (MDU) is a Utilities stock that has seen a price change of 15.68% so far this year. The energy, mining, construction and utilities company is paying out a dividend of $0.21 per share at the moment, with a dividend yield of 2.79% compared to the Utility - Gas Distribution industry's yield of 2.96% and the S&P 500's yield of 1.39%.
Looking at dividend growth, the company's current annualized dividend of $0.85 is up 1.8% from last year. Over the last 5 years, MDU Resources has increased its dividend 5 times on a year-over-year basis for an average annual increase of 2.57%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, MDU Resources's payout ratio is 44%, which 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 $2.05 per share, with earnings expected to increase 5.13% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that MDU is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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MDU Resources Group, Inc. (MDU) : Free Stock Analysis Report
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