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This is Why MDU Resources (MDU) is a Great Dividend Stock

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 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 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 -9.79%. The energy, mining, construction and utilities company is currently shelling out a dividend of $0.22 per share, with a dividend yield of 3.13%. This compares to the Utility - Gas Distribution industry's yield of 3.2% and the S&P 500's yield of 1.72%.

In terms of dividend growth, the company's current annualized dividend of $0.87 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 2.53%. 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 49%, which means it paid out 49% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for MDU for this fiscal year. The Zacks Consensus Estimate for 2022 is $2.05 per share, representing a year-over-year earnings growth rate of 9.63%.

Bottom Line

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.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful 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 is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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