MDU Resources Group (NYSE:MDU) Is Paying Out A Larger Dividend Than Last Year

The board of MDU Resources Group, Inc. (NYSE:MDU) has announced that it will be increasing its dividend by 2.3% on the 1st of January to $0.2225, up from last year's comparable payment of $0.218. This will take the annual payment to 2.8% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for MDU Resources Group

MDU Resources Group's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, MDU Resources Group's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 55.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which is in the range that makes us comfortable with the sustainability of the dividend.

MDU Resources Group Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.67 in 2012, and the most recent fiscal year payment was $0.87. This means that it has been growing its distributions at 2.6% per annum over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

The Dividend Has Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. MDU Resources Group has impressed us by growing EPS at 6.6% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On MDU Resources Group's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While MDU Resources Group is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for MDU Resources Group (1 can't be ignored!) that you should be aware of before investing. Is MDU Resources Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.