This is Why Otter Tail (OTTR) is a Great Dividend Stock
Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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
Headquartered in Fergus Falls, Otter Tail (OTTR) is a Utilities stock that has seen a price change of 4.48% so far this year. The power company and manufacturer is paying out a dividend of $0.34 per share at the moment, with a dividend yield of 2.89% compared to the Utility - Electric Power industry's yield of 3.22% and the S&P 500's yield of 1.96%.
Looking at dividend growth, the company's current annualized dividend of $1.34 is up 4.7% from last year. Otter Tail has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 2.32%. Future dividend growth will depend on earnings growth as well as 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 64%, which means it paid out 64% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for OTTR for this fiscal year. The Zacks Consensus Estimate for 2018 is $2 per share, which represents a year-over-year growth rate of 7.53%.
Bottom Line
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, OTTR is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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