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
Headquartered in Bismarck, MDU Resources (MDU - Free Report) is a Utilities stock that has seen a price change of 16.65% so far this year. The energy, mining, construction and utilities company is currently shelling out a dividend of $0.2 per share, with a dividend yield of 2.91%. This compares to the Utility - Gas Distribution industry's yield of 2.65% and the S&P 500's yield of 1.91%.
In terms of dividend growth, the company's current annualized dividend of $0.81 is up 1.9% 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%. 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%, meaning 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, which represents a year-over-year growth rate of 8.70%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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. 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 #1 (Strong Buy).