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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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
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 18.79%. The energy, mining, construction and utilities company is currently shelling out a dividend of $0.21 per share, with a dividend yield of 2.72%. This compares to the Utility - Gas Distribution industry's yield of 3.05% and the S&P 500's yield of 1.37%.
Taking a look at the company's dividend growth, its 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 2.54%. 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 41%, which means it paid out 41% 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 $2.08 per share, which represents a year-over-year growth rate of 6.67%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 have to be mindful 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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