Four Days Left to Secure Otter Tail’s (OTTR) Attractive Dividend Before Ex-Dividend Date

Investors have just four days left to purchase shares of Otter Tail Corporation (OTTR) before its ex-dividend date on May 15, 2025, ensuring eligibility for the upcoming $0.525 per share dividend payable on June 10. This marks a critical window for income-focused investors seeking to capture one of the utility sector’s most reliable payouts, supported by a 72-year dividend-paying streak. However, the decision comes with nuances tied to the company’s financial health and dividend sustainability.

The Ex-Dividend Deadline: What Investors Need to Know

To receive the June 10 dividend, investors must own shares by the close of trading on May 14. On May 15—the ex-dividend date—the stock will open approximately 0.676% lower to reflect the dividend payout, a routine adjustment seen in all ex-dividend events. The dividend yield (trailing twelve months) currently stands at 2.50%, slightly above the broader S&P 500’s average yield of 1.7%, offering income-seeking investors a modest but consistent return.

Dividend Sustainability: Strengths and Weaknesses

Otter Tail’s dividend is underpinned by a 25.94% payout ratio relative to earnings, which suggests ample coverage from profits. The company has increased its dividend annually since 1938, a testament to its conservative financial management. However, a red flag emerges in its cash flow payout ratio, which hit 104% over the past year. This implies the company paid more in dividends than it generated in free cash flow, raising questions about its ability to sustain dividends if cash flow weakens.

A Dividend Growth Surprise

Despite the cash flow concern, Otter Tail’s dividend growth has accelerated. The $0.525 per share payout represents a 12.3% year-over-year increase, outpacing its 3-year average growth rate of 8.3%. This reflects management’s confidence in the utility’s regulated operations, which provide stable revenue streams. The dividend’s TTM yield of 2.5% also compares favorably to peers like Xcel Energy (XEL) (2.1%) and NextEra Energy (NEE) (2.0%), though OTTR’s valuation is lower, trading at 16.8x forward earnings versus the sector average of 18x.

Risks and Considerations

• Cash Flow Dependency: The 104% cash flow payout ratio is a warning sign. A drop in cash generation—due to capital spending surges or regulatory headwinds—could pressure dividends.
• Utility Sector Dynamics: OTTR’s regulated operations in Minnesota, North Dakota, and Montana offer steady revenue, but its smaller scale (market cap: $1.4 billion) limits diversification compared to larger utilities.
• Valuation: While undervalued relative to peers, OTTR’s stock may face downward pressure on the ex-dividend date, as its price typically drops by the dividend amount.

Conclusion: A Dividend Worth the Risk?

Otter Tail Corporation remains a solid choice for income investors seeking stability, particularly with its 72-year dividend history and conservative payout ratio relative to earnings. The $0.525 dividend, set against a 2.5% yield, offers modest but consistent returns. However, the cash flow shortfall highlights a trade-off: investors must weigh the dividend’s reliability against potential volatility in earnings quality.

For those willing to accept the risks, buying OTTR before May 15 locks in this year’s dividend while capitalizing on a P/E ratio 8% below its 5-year average. Yet, given the 104% cash flow payout, diversification into larger utilities like Dominion Energy (D) or PPL Corporation (PPL)—which boast stronger cash flow margins—might reduce portfolio risk.

In short, OTTR’s dividend is worth pursuing for income investors, but not without acknowledging the need for vigilance around its cash flow trajectory. The clock is ticking—act before May 15 to secure this opportunity.