Otter Tail (NASDAQ:OTTR) Could Be A Buy For Its Upcoming Dividend

Otter Tail Corporation (NASDAQ: OTTR) has been making waves in the utilities sector with its consistent dividend growth and strong earnings performance. With a recent dividend increase of 12.3% and a long history of paying dividends, Otter Tail could be an attractive investment opportunity for income-oriented investors. In this article, we will explore the key drivers of Otter Tail's earnings growth, its dividend payout ratio, and the company's commitment to maintaining and increasing its dividend.



Otter Tail's earnings growth is driven by several key factors:

1. Electric Segment Earnings Growth: Otter Tail's Electric segment, which contributes approximately 65% of the company's earnings, grew by 6% in 2023 compared to 2022. This growth was driven by the recovery of rate base investments and increased commercial and industrial sales. The CEO expects the Electric segment's 5-year capital expenditure plan to produce rate base growth at a compounded annual rate of 7.7%, further driving earnings growth.
2. Manufacturing Segment Earnings: The Manufacturing segment, contributing approximately 35% of the company's earnings, increased modestly from 2022. Expansion projects are underway for both BTD Manufacturing and Vinyltech to add capacity and support future growth opportunities.
3. Reduction in Corporate Costs: A significant reduction in corporate costs also drove 2023 earnings, as the company benefited from returns on short-term investments funded by the significant cash flows generated by its businesses over the last three years.

Otter Tail's dividend payout ratio is relatively low, at around 25%. This means the company is retaining a significant portion of its earnings to reinvest in its businesses, which should drive future earnings growth and support dividend increases. The company's future payout ratio is expected to rise to 54% over the next three years, which is still lower than the industry average, indicating Otter Tail's commitment to maintaining a sustainable dividend while reinvesting in its business.



Otter Tail's consistent dividend history, with 2025 marking the 87th consecutive year dividends will be paid on common stock, demonstrates the company's commitment to sharing its profits with shareholders and maintaining its dividend. The company's long-term focus is to grow its business and achieve operational, commercial, and talent excellence to strengthen its position in the markets it serves.

In conclusion, Otter Tail's earnings growth, driven by its Electric segment, Manufacturing segment, and reduction in corporate costs, enables the company to maintain and increase its dividend. The company's low dividend payout ratio and consistent dividend history further support its ability to continue paying and growing its dividend. With a recent dividend increase of 12.3% and a long history of paying dividends, Otter Tail could be an attractive investment opportunity for income-oriented investors seeking a stable and growing dividend. However, as with any investment, it is essential to conduct thorough research and consider your risk tolerance before making a decision.