MDU Resources Group, Inc.’s MDU board of directors announced a hike in the quarterly dividend to 20.75 cents per share, up 2.5% from the previous rate. The annual rate of the dividend is currently at 83 cents.
The quarterly dividend will be paid out on Jan 1, 2020 to shareholders of record as of Dec 12, 2019. The current annualized dividend yield of the company is 2.86% compared with the industry’s 2.85% and the Zacks S&P 500 composite’s 1.82%.
Reasons for the Hike
The Utilities sector provides basic electric, water and gas services. The sector is less affected by the fluctuations in the economy. Stable earnings and cash flow enable utilities to reward shareholders with regular dividends and share buybacks.
The recent hike marks MDU Resources’ 82nd year of paying uninterrupted dividend and 29th consecutive year of dividend increase. Rise in distributable income reflects on the company’s strong cash flow and steady performance over the last three decades. The company’s two-platform business model, strategic acquisitions and planned investments are tailwinds.
Year to date, shares of the company have returned 21.6% compared with the industry’s rise of 18.5%.
Other firms from the same sector are also increasing dividends to reward shareholders. On Sep 25, 2019, OGE Energy Corporation OGE announced that its board of directors has approved a 6% increase in the quarterly dividend rate. On Sep 20, IDACORP IDA announced that the board of directors has approved a 6.3% increase in the quarterly dividend rate to 67 cents. In July 8, Duke Energy DUK announced that its board of directors has approved a quarterly cash dividend of 94.5 cents per share on its common stock. This marks a quarterly increase of 1.75 cents or 1.85%.
Can MDU Resources Maintain Dividend Hikes?
MDU Resources has made capital expenditure of $469.2 million in the first nine months of 2019 compared with capital expenditure of $398.3 million in year-ago period. In its five year Capex Plan, the company announced an investment of $2.6 billion through 2019-2023 period. These investments will increase reliability of services and enable the company to serve increasing customer base effectively. The company anticipates that it’s utility electric and natural gas customer base to expand annually by 1-2% and expects to grow rate base by 5% compounded annually over next five years.
Moreover, at the end of third quarter, the construction materials business and the construction services had backlog of $747 million and $1.2 billion, up 27% and 34% on a year-over-year basis, respectively. Increasing backlog in these segments is expected to boost the company’s future business. We believe that a strong cash flow, a sturdy capex plan and increasing backlogs will generate sufficient funds to meet financial commitments.
MDU Resources currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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