MDU Resources Group (NYSE:MDU) Is Increasing Its Dividend To $0.14

MDU Resources Group, Inc. (NYSE:MDU) will increase its dividend from last year's comparable payment on the 1st of October to $0.14. Although the dividend is now higher, the yield is only 3.2%, which is below the industry average.

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MDU Resources Group's Future Dividends May Potentially Be At Risk

If it is predictable over a long period, even low dividend yields can be attractive. The last payment was quite easily covered by earnings, but it made up 162% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to expand by 20.6%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

See our latest analysis for MDU Resources Group

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the dividend has gone from $0.73 total annually to $0.52. Doing the maths, this is a decline of about 3.3% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though MDU Resources Group's EPS has declined at around 13% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

MDU Resources Group's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think MDU Resources Group's payments are rock solid. While MDU Resources Group is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for MDU Resources Group (of which 1 is significant!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.