Yahoo Finance Be Sure To Check Out Otter Tail Corporation (NASDAQ:OTTR) Before It Goes Ex-Dividend
Otter Tail Corporation (NASDAQ:OTTR) stock is about to trade ex-dividend in 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Otter Tail's shares on or after the 15th of August, you won't be eligible to receive the dividend, when it is paid on the 10th of September.
The company's next dividend payment will be US$0.4675 per share, and in the last 12 months, the company paid a total of US$1.87 per share. Last year's total dividend payments show that Otter Tail has a trailing yield of 2.1% on the current share price of US$90.58. If you buy this business for its dividend, you should have an idea of whether Otter Tail's dividend is reliable and sustainable. So we need to investigate whether Otter Tail can afford its dividend, and if the dividend could grow.
View our latest analysis for Otter Tail
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Otter Tail paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 57% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Otter Tail's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Otter Tail has grown its earnings rapidly, up 29% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Otter Tail has increased its dividend at approximately 4.6% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Otter Tail is keeping back more of its profits to grow the business.
To Sum It Up
From a dividend perspective, should investors buy or avoid Otter Tail? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Otter Tail looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, Otter Tail has 2 warning signs (and 1 which can't be ignored) we think you should know about.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
