Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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
Based in Bismarck, MDU Resources (MDU) is in the Utilities sector, and so far this year, shares have seen a price change of -5.99%. The energy, mining, construction and utilities company is currently shelling out a dividend of $0.2 per share, with a dividend yield of 3.13%. This compares to the Utility - Gas Distribution industry's yield of 2.66% and the S&P 500's yield of 1.96%.
Looking at dividend growth, the company's current annualized dividend of $0.79 is up 1.9% from last year. MDU Resources has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 2.60%. 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. MDU Resources's current payout ratio is 61%, meaning it paid out 61% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, MDU expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $1.38 per share, which represents a year-over-year growth rate of 10.40%.
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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MDU Resources Group, Inc. (MDU) : Free Stock Analysis Report
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