Interested In Otter Tail's (NASDAQ:OTTR) Upcoming US$0.525 Dividend? You Have Four Days Left

Explore Otter Tail's Fair Values from the Community and select yours

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Otter Tail Corporation (NASDAQ:OTTR) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Otter Tail's shares before the 15th of August in order to receive the dividend, which the company will pay on the 10th of September.

The company's upcoming dividend is US$0.525 a share, following on from the last 12 months, when the company distributed a total of US$2.10 per share to shareholders. Based on the last year's worth of payments, Otter Tail has a trailing yield of 2.6% on the current stock price of US$79.73. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Otter Tail's payout ratio is modest, at just 29% of profit. A useful secondary check can be to evaluate whether Otter Tail generated enough free cash flow to afford its dividend. The company paid out 102% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Otter Tail paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Otter Tail's ability to maintain its dividend.

Check out our latest analysis for Otter Tail

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Otter Tail has grown its earnings rapidly, up 26% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Otter Tail has increased its dividend at approximately 5.7% 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? We like that Otter Tail has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. In summary, while it has some positive characteristics, we're not inclined to race out and buy Otter Tail today.

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 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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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.