Are You Looking for a High-Growth Dividend Stock? Otter Tail (OTTR) Could Be a Great Choice

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 34.4% so far this year. The power company and manufacturer is paying out a dividend of $0.39 per share at the moment, with a dividend yield of 2.72% compared to the Utility - Electric Power industry's yield of 3.39% and the S&P 500's yield of 1.42%.

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 4.92%. 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 51%, which means it paid out 51% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, OTTR expects solid earnings growth. 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 many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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 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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