All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
MDU Resources in Focus
MDU Resources (MDU - Free Report) is headquartered in Bismarck, and is in the Utilities sector. The stock has seen a price change of 18.75% since the start of the year. The energy, mining, construction and utilities company is currently shelling out a dividend of $0.2 per share, with a dividend yield of 2.86%. This compares to the Utility - Gas Distribution industry's yield of 2.72% and the S&P 500's yield of 1.89%.
Looking at dividend growth, the company's current annualized dividend of $0.81 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 2.67%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. MDU Resources's current payout ratio is 55%. This means it paid out 55% of its trailing 12-month EPS as dividend.
MDU is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $1.50 per share, representing a year-over-year earnings growth rate of 8.70%.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that MDU is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).