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.

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

Headquartered in Bismarck, MDU Resources (MDU) is a Utilities stock that has seen a price change of 20.08% 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 2.69% compared to the Utility - Gas Distribution industry's yield of 3% and the S&P 500's yield of 1.39%.

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%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company'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 $2.12 per share, which represents a year-over-year growth rate of 8.72%.

Bottom Line

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.

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 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 is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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