All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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 - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of 5.25%. The energy, mining, construction and utilities company is currently shelling out a dividend of $0.21 per share, with a dividend yield of 2.65%. This compares to the Utility - Gas Distribution industry's yield of 2.8% and the S&P 500's yield of 1.75%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.83 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 2.64%. 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 51%, meaning it paid out 51% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, MDU expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $1.75 per share, with earnings expected to increase 3.55% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, MDU presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).