Portfolio Update
The FiveTwenty portfolio received $314.33 in dividends in the past week. AFL, ADM, BKH, ENB, FTS, INTC, SJM, and SWX paid their quarterly dividend during the week.
| Past Week Dividend | $314.33 |
| Current Quarter Dividend (Q1 2022) | $762.91 |
| LifeTime Dividend | $2,873.72 |
| Estimated Annual Dividend | $4,585.92 |
The capital allocation for the week of 03/06/2022 to 03/12/2022 will be used to add to our position in MDU Resources Group (NYSE: MDU)
MDU – Position Update
Since our last check-in on MDU in week 26 of 2021, the company the company reported Q2 2021 earnings on 08/04/2021, Q3 2021 earnings on 11/03/2021, and Q4 and FY 2021 earnings on 02/09/2021. Additionally, the share price decreased 17.1% from $31.92 to $26.46.
| TTM | Prev. Update | 10-year median | |
| Dividend Growth Streak | 30 years | 30 years | |
| Yield | 3.19% | 2.66% | 2.96% |
| Payout Ratio | 45.97% | 41% | 58% |
| P/E | 14.34 | 15.35 | 18.57 |
FY 2021 earnings report
Did MDU’s latest earnings report raise any warning flags?
For FY 2021, MDU posted higher revenues than in the previous year. Net earnings and EPS, however, were lower than in for FY 2020. Lower margins in the construction materials business due to higher equipment, asphalt oil, fuel and labor cost, as well as higher insurance and depreciation cost related to discontinued operation where the responsible for the drop in net income and EPS. Overall revenues grew 2.68%, net income decreased 3.08%, and EPS where 4.1% lower than in FY 2020.
| Revenue (in millions) | Net Income (in millions) | EPS . | |
| FY 2020 | $5,532.7 | $390.2 | $1.95 |
| FY 2021 | $5,680.7 | $378.2 | $1.87 |
| % Change | 2.68% | (3.08)% | (4.1)% |
Additional noteworthy developments during the quarter:
- Backlog of work for the construction services business at 12/31/2021 was an all-time record $1.38 billion.
- Backlog of work for the constructions materials business at 12/31/2021 was $708 million.
- On 02/17/2022, MDU declared a quarterly dividend of $0.2175 per share payable 04/01/2022 to shareholders of record on 03/10/2022.
Looking ahead, MDU expects EPS in the range of $2.00 to $2.15 for 2022. Additionally, it plans to invest around $726 million for capital projects during the year. And finally, the company re-affirmed the 5-8% long-term CAGR for EPS target.
Thesis
Why are we adding to our position in MDU?
MDU missed net income expectations in Q3 2021 and Q4 2021 and has experienced a share price drop as a result. However, revenues, backlog of work for the construction materials and services unit, and earnings for the regulated energy delivery unit have continue to grow. Therefore, we do not think the weaker earnings indicate a deterioration in the prospects of the business. Instead, short term headwinds due to inflationary pressures in the economy at large, that we expect MDU to adjust to.
Therefore, we view the recent share price declines as an opportunity to add to our position at a yield that is above the 10-year median and a PE valuation below the 10-year median, ahead of the ex-dividend date of 03/08/2022.
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Photo by Adam Rhodes on Unsplash