Are You Looking for a High-Growth Dividend Stock? Otter Tail (OTTR) Could Be a Great Choice
Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Otter Tail in Focus
Otter Tail (OTTR) is headquartered in Fergus Falls, and is in the Utilities sector. The stock has seen a price change of 35.16% since the start of the year. Currently paying a dividend of $0.39 per share, the company has a dividend yield of 2.71%. In comparison, the Utility - Electric Power industry's yield is 3.21%, while the S&P 500's yield is 1.4%.
Looking at dividend growth, the company's current annualized dividend of $1.56 is up 5.4% from last year. Over the last 5 years, Otter Tail has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.82%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Otter Tail's payout ratio is 51%, which means it paid out 51% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for OTTR for this fiscal year. The Zacks Consensus Estimate for 2021 is $3.55 per share, which represents a year-over-year growth rate of 51.71%.
Bottom Line
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, OTTR presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).
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