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Why MDU Resources (MDU) is a Great Dividend Stock Right Now

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

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 - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of 22.13%. Currently paying a dividend of $0.21 per share, the company has a dividend yield of 2.64%. In comparison, the Utility - Gas Distribution industry's yield is 2.99%, while the S&P 500's yield is 1.37%.

In terms of dividend growth, the company's current annualized dividend of $0.85 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 2.54%. 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.

MDU is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $2.12 per share, which represents a year-over-year growth rate of 8.72%.

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. But, not every company offers 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. 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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