Few are forecasting much cooperation between the president and now-Democrat controlled House of Representatives in the New Year; but if America’s warring political parties do come together on anything, odds are good it will be on infrastructure, notes Roger Conrad, editor Conrad's Utility Investor.
That would be great news for MDU Resources (MDU), an aggressive holding in our model portfolio. The company is two businesses in one.
The 8-state regulated electric and natural gas utility network secures the BBB+ rated balance sheet and a safe 3.5 percent dividend, which consistently increases at an inflation-beating rate. The company’s construction materials and services arm is national and already enjoys robust growth from rising state and local spending on roads, bridges and other basic infrastructure.
The utilities operate in one of the most economically vibrant areas of the country in the Dakotas and upper Rocky Mountain states, including the Bakken shale oil and natural gas basin.
Overall customer growth is expected to average at least 1 to 2 through 2023, fueling 6 percent annual increases in rate base backed by favorable regulation. And after exiting the fossil fuels business in recent years, the company is emerging as a renewable energy leader as well, with the Thunder Spirit Wind Farm now adding to earnings.
Management reports the company’s construction services backlog surged 34 percent over the last 12 months, while construction materials increased by 58 percent.
And the company has reduced much of the cyclicality of the business by expanding its customer list to include the hospitality, gaming, high tech, education and healthcare industries, in addition to the US military and essential services businesses such as power, gas and communications.
A tightening capital market is a major concern for many capital intensive businesses heading into 2019. MDU, however, has just $69 million of maturing debt through 2026, giving it flexibility to make strategic acquisitions as rivals flounder. It’s also a potential takeover target in its own right, with a market cap of less than $5 billion and trading at less than 15 times expected 12 months earnings. Buy MDU Resources up to $27.
