North Dakota's Two Gifts to Investors
MDU Resources and Otter Tail are treating shareholders superbly.
While widely held utility stocks such as Duke Energy, Exelon, FPL and Southern Company flicker this year, a much-lesser-known duo from North Dakota are generating yet another pair of double-digit total returns.
MDU Resources (symbol MDU) and Otter Tail Corp. (OTTR) have delivered year-to-date returns of 16% and 17% through August 19, even after Otter Tail shares fell 19% on August 5 on news of a less-than-requested rate increase in Minnesota and the company's reduced profit forecast for the rest of 2008. The same day, MDU issued stronger-than-forecasted quarterly results and raised its earnings "guidance" substantially through the end of 2008. Since then, Otter Tail shares have gained back half the one-day loss, closing at $39.58 on August 20, while MDU has traded flat. This says that traders overreacted (as they frequently do), dumping Otter Tail shares over a one-time disappointment, and that they are waiting to see whether MDU can keep its new profit promises.
There are many reasons to like both stocks. They each possess a decent balance sheet. They've paid dividends continuously since the 1930s, with regular increases. And MDU and Otter Tail are succeeding in reducing their dependence on regulated gas-and-electric services without endangering their dividends or, worse, losing huge sums and veering toward possible bankruptcy.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
That a couple of small gas-and-electric companies, with service in the Dakotas, Idaho, Montana and northern Minnesota, can make a diversified business approach work while so many bigger boys have botched similar endeavors isn't just a sweet story from the heartland. It's another example of why you need to look beyond a company's size and fame to see what the business is truly about.
The performance of the two stocks bears out how well these companies are managed. For the past ten years through July 31, the average electric-utility stock produced an annualized return (including dividends) of 4.1%. MDU's figure is 14.8%, and Otter Tail's is 12.7%. Over the past three years, both companies handily outgained Exelon, whose vast nuclear holdings make it Wall Street's favorite utility investment.
How is this? With MDU, the answer is largely natural gas. MDU produces plenty of it (and is looking for more in Texas and North Dakota), and the company stores and transports gas in its own fields and pipelines. With gas usage growing and prices strong, gas operations from the drill bit to the thermostat provided about 75% of MDU's earnings in the first half of 2008. (MDU closed at $32.23 on August 20.)
Otter Tail is even more diversified. It owns several infrastructure businesses related to gas-and-electric power, such as DMI Industries, which builds towers for wind turbines. Otter Tail is investing heavily in DMI, which recently built a plant in Oklahoma that is not yet profitable -- another reason for weak second-quarter earnings results. But the order backlog is growing and the future of wind-power equipment is terrific, thanks to federal tax credits and state regulations that mandate more renewable energy.
Both MDU and Otter Tail have construction subsidiaries, whose growth has slowed with the economy. This also holds back earnings at the moment and stands as a risk to those profit projections. But in times of prosperity, these stocks serve well as growth investments built atop a base of regulated earnings and reliable dividends. And you thought North Dakota only stood for wheat fields, cold weather and wide-open spaces?
-
Timeless Trips for Solo TravelersHow to find a getaway that suits your style.
-
A Top Vanguard ETF Pick Outperforms on International StrengthA weakening dollar and lower interest rates lifted international stocks, which was good news for one of our favorite exchange-traded funds.
-
Is There Such a Thing As a Safe Stock? 17 Safe-Enough IdeasNo stock is completely safe, but we can make educated guesses about which ones are likely to provide smooth sailing.
-
If You'd Put $1,000 Into Caterpillar Stock 20 Years Ago, Here's What You'd Have TodayCaterpillar stock has been a remarkably resilient market beater for a very long time.
-
I'm a 55-Year-Old Dad. Here’s How My 28-Year-Old Daughter Showed Me That AXP Is Still a Solid InvestmentAmerican Express stock is still a solid investment because management understands the value of its brand and is building a wide moat around it.
-
If You'd Put $1,000 Into AMD Stock 20 Years Ago, Here's What You'd Have TodayAdvanced Micro Devices stock is soaring thanks to AI, but as a buy-and-hold bet, it's been a market laggard.
-
If You'd Put $1,000 Into UPS Stock 20 Years Ago, Here's What You'd Have TodayUnited Parcel Service stock has been a massive long-term laggard.
-
How the Stock Market Performed in the First Year of Trump's Second TermSix months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
If You'd Put $1,000 Into Lowe's Stock 20 Years Ago, Here's What You'd Have TodayLowe's stock has delivered disappointing returns recently, but it's been a great holding for truly patient investors.
-
If You'd Put $1,000 Into 3M Stock 20 Years Ago, Here's What You'd Have TodayMMM stock has been a pit of despair for truly long-term shareholders.
-
If You'd Put $1,000 Into Coca-Cola Stock 20 Years Ago, Here's What You'd Have TodayEven with its reliable dividend growth and generous stock buybacks, Coca-Cola has underperformed the broad market in the long term.
