MDU’s decision to spin off Knife River Corporation as an independent entity demonstrates the company’s commitment to streamlining its operations. Previously, Knife River accounted for approximately 30% of MDU’s earnings, while the remaining business was divided between construction services (48% of profits), a regulated utility (39%), and pipelines (13%). The separation of Knife River allows MDU to focus on its core areas of regulated utilities and pipelines, which are poised for stable growth.

Although the construction services subsidiary has yet to reach a final decision, MDU’s management expects to conclude the strategic review in the second quarter of 2023. The potential options include selling the segment, spinning it off to shareholders, or retaining it. As the construction services business currently contributes roughly half of MDU’s earnings, the outcome will significantly impact the company’s dividend profile.

Each of MDU’s business segments continues to exhibit a favorable outlook. If MDU retains its construction services arm or spins it off, income investors could potentially remain unaffected. Knife River has hinted at paying dividends, and the construction services segment, if separated, might also consider doing so.

Assuming MDU separates its construction services subsidiary, the remaining company will primarily focus on regulated utilities, serving over 1 million customers in the Great Plains and Pacific Northwest. This segment is expected to generate predictable profits and benefit from healthier demographics in its service areas. The remaining earnings, approximately 25%, will come from MDU’s regulated natural gas pipelines, which carry minimal risk and are not exposed to volume-sensitive gathering and processing services.

The transformed MDU, with its core focus on regulated utilities and pipelines, is expected to offer long-term value to shareholders. As for the recently spun-off Knife River Corporation, shareholders may consider selling their shares and reinvesting the proceeds into MDU, as other construction materials companies have demonstrated a need for resilience during economic cycles.

In light of Knife River’s uncertainty for paying a dividend I’m opting to sell my positions and put those funds into Ares Capital (ARCC). ARCC has over a 10% yield and looks to be stable for the time being.