Updated 3/11/2025
Otter Tail Corporation (NASDAQ: OTTR) is not your typical utility stock. While it operates a regulated electric utility serving Minnesota, North Dakota, and South Dakota, it also has a manufacturing business that adds a layer of diversification. This mix gives the company a blend of stability from predictable utility earnings and some upside potential from its industrial operations.
At around $80.52 per share, Otter Tail has had its share of market fluctuations, dipping from its 52-week high of $100.84. However, with a low beta of 0.52, the stock remains relatively stable compared to the broader market. Investors looking for a steady income source backed by strong financials may find OTTR an interesting choice.
🔑 Key Dividend Metrics
📈 Forward Dividend Yield: 2.55%
💰 Forward Annual Dividend: $2.10 per share
📊 Payout Ratio: 26.08% (highly sustainable)
📆 Ex-Dividend Date: February 14, 2025
📅 Next Dividend Payment: March 10, 2025
📈 5-Year Average Dividend Yield: 2.66%
Dividend Overview
Otter Tail’s dividend yield sits at 2.55%, slightly below its five-year average. What stands out, though, is the incredibly low payout ratio of 26.08%. That means the company retains most of its earnings for reinvestment, leaving plenty of room for future dividend hikes.
For income investors, consistency is key. Otter Tail has a solid track record of paying dividends, and its history of steady increases suggests a commitment to rewarding shareholders. While some investors might prefer utility stocks with higher yields, OTTR offers something more valuable—long-term sustainability.
Dividend Growth and Safety
Dividend Growth Track Record
One of the biggest draws of Otter Tail for dividend-focused investors is its history of raising payouts. While it may not offer the sky-high yields of some utilities, it delivers steady, reliable increases over time.
- The company has been raising dividends consistently, showing confidence in its financial position.
- With a payout ratio of just 26.08%, there’s ample room for continued dividend growth.
Is the Dividend Safe?
Without a doubt. Otter Tail has solid profitability, with a profit margin of 22.67% and a return on equity of 19.39%. Even with a slight dip in earnings growth (-5% year-over-year), the dividend isn’t at risk. The low payout ratio ensures the company can continue distributing dividends even during economic downturns.
Chart Analysis
Price Action and Moving Averages
The stock recently closed at $82.26, hovering just below the 200-day moving average (82.26). This level has been acting as a resistance point, as the price attempted to break above it but failed to hold. The 50-day moving average is trending upward, which indicates some short-term strength, but the stock remains in a broader downtrend when looking at the past several months.
Back in mid-2024, the price saw a strong rally, pushing well above $100, before experiencing a significant decline. The selling pressure that followed took the stock below both moving averages, and it’s been struggling to regain momentum ever since. The fact that it’s now approaching the 200-day moving average could be a key moment—either it pushes through with strong buying interest, or it faces another rejection, leading to a possible retracement.
Volume and Market Participation
Recent trading volume has been 221,768, which is relatively in line with average levels. However, looking back at the past several months, it’s clear that volume has been higher during sell-offs than during recovery periods. This suggests that stronger conviction has been on the selling side, with buying interest lacking the same level of force.
There were a few notable volume spikes, particularly in late September and early November, where sharp downward moves were accompanied by increased selling pressure. More recently, volume has been relatively steady but hasn’t shown a clear surge to suggest a strong bullish reversal just yet.
RSI and Momentum
The Relative Strength Index (RSI) at the bottom of the chart has been moving higher but remains in a neutral zone—not yet overbought, but also not deeply oversold. This suggests the stock has been regaining some strength, though not at an extreme level that would signal a strong reversal.
The RSI has spent a lot of time in lower ranges over the past several months, indicating that bearish momentum has been dominant. The recent uptrend in RSI aligns with the stock’s attempt to move higher, but it’s still not showing the kind of strength that would confirm a sustained bullish breakout.
Key Support and Resistance Levels
The $75-$76 range has acted as a strong support zone multiple times over the past few months, with buyers stepping in whenever the stock dips toward that level. On the resistance side, the 200-day moving average near $82.26 is a major hurdle. If the stock clears this level with strong volume, it could see a further push toward $85-$87, where it faced selling pressure in the past.
However, if it fails to hold above the 200-day moving average, another pullback to the mid-to-high 70s wouldn’t be surprising, especially if volume remains weak.
Analyst Ratings
📈 Recent Upgrade: In November 2024, Siebert Williams Shank raised their rating on Otter Tail from sell to hold, adjusting their price target from $70 to $81. This upgrade came as the company showed an improved earnings outlook, despite a slight reduction in revenue estimates. Analysts pointed to Otter Tail’s strong cost management strategies as a key factor in offsetting lower revenue projections.
📉 Recent Downgrade: In March 2023, Maxim Group moved Otter Tail from buy to hold, citing concerns about slowing revenue growth and potential margin pressures. Analysts expressed caution about the company’s ability to sustain its previous growth pace, given industry challenges and an increasingly competitive market environment.
🎯 Consensus Price Target: The current average price target for Otter Tail sits at $82.00, based on assessments from multiple analysts. This suggests a modest upside from current levels, reflecting a mixed but generally stable outlook for the company.
These differing analyst perspectives highlight both the strengths and challenges facing Otter Tail. While cost controls and earnings strength provide optimism, concerns over revenue growth and industry competition remain factors to watch.
Earning Report Summary
Otter Tail Corporation recently shared its latest earnings, giving investors a closer look at how the company performed over the last quarter and full year. The numbers showed a mixed picture—some areas of the business held steady, while others faced headwinds.
For the fourth quarter, Otter Tail reported a net income of $54.85 million, slightly lower than the $57.77 million from the same time last year. That worked out to earnings of $1.31 per share, compared to $1.39 previously. Looking at the full year, things were more positive. Net income came in at $301.66 million, up from $294.19 million the year before. Earnings per share for the year also saw a slight bump to $7.17, reflecting solid returns for shareholders.
Breaking things down by segment, the Electric division stayed consistent, bringing in $130.38 million in revenue for the quarter, about the same as last year. The difference this time was stronger net income, helped by favorable weather, rate increases in North Dakota, and adjustments to refund estimates. However, those gains were offset somewhat by higher depreciation and interest expenses.
The Manufacturing segment, on the other hand, had a rougher quarter. Revenue fell by about 20%, mainly because of weaker demand in areas like agriculture, construction, and recreational vehicles. Lower scrap metal prices and reduced steel costs also played a role. As a result, net income for this segment dropped by $5.3 million.
Meanwhile, the Plastics segment saw revenue tick slightly higher, thanks to a 13% boost in sales volume. However, lower selling prices for PVC pipe weighed on overall profitability, leading to a $4.7 million decline in net income for this part of the business.
Looking ahead, Otter Tail is focusing on long-term growth. The company updated its five-year spending plan to $1.4 billion, with a goal of increasing its electric rate base by 9% annually. It also bumped up its long-term earnings growth target, now expecting earnings per share to grow by 6% to 8% per year, up from the previous forecast of 5% to 7%. For 2025, management is expecting earnings in the range of $5.68 to $6.08 per share.
Despite some near-term challenges, Otter Tail continues to invest in its future. The Electric segment remains a steady performer, while the Manufacturing and Plastics divisions are adapting to changing market conditions. The company’s updated growth targets suggest confidence in its ability to deliver value over the long run.
Financial Health and Stability
Debt and Liquidity
A company’s balance sheet tells a lot about its ability to sustain dividend payments. Otter Tail is in good shape financially, with:
- Total Debt: $1.04 billion
- Debt-to-Equity Ratio: 62.43% (reasonable for a utility)
- Total Cash: $294.65 million
- Current Ratio: 2.03 (indicating strong liquidity)
Unlike some utilities that rely heavily on debt, Otter Tail maintains a moderate leverage level. This gives it more flexibility in managing capital expenditures and returning cash to shareholders.
Cash Flow Strength
Otter Tail generates strong cash flow, with operating cash flow standing at $452.73 million. However, its levered free cash flow is slightly negative at -$7.25 million. This suggests the company is investing heavily in its business, which could support long-term growth but may limit near-term excess cash distributions.
Valuation and Stock Performance
Valuation Metrics
- Trailing Price-to-Earnings Ratio: 11.48 (reasonable compared to peers)
- Forward Price-to-Earnings Ratio: 12.94
- Price-to-Book Ratio: 2.07 (fairly valued for a utility)
- PEG Ratio (expected 5-year growth): 2.16 (moderate growth expectations)
Trading at just over 11 times earnings, Otter Tail isn’t expensive by utility standards. Its valuation suggests the market isn’t pricing in aggressive growth, which could mean there’s some upside potential if the company continues executing well.
Stock Performance
- 52-Week High: $100.84
- 52-Week Low: $71.66
- 50-Day Moving Average: $78.15
- 200-Day Moving Average: $82.26
Currently, Otter Tail is trading below its 200-day moving average, which typically signals some weakness in momentum. However, for long-term investors focused on dividends, this could present a decent entry point.
Risks and Considerations
No stock is without risks, and even stable dividend payers like Otter Tail have potential downsides.
Regulatory and Policy Risks
As a regulated utility, Otter Tail is subject to state and federal oversight. Any changes in rate approvals or environmental policies could impact its revenue.
Manufacturing Segment Exposure
Unlike pure-play utilities, Otter Tail’s manufacturing business introduces some cyclicality. If demand for industrial products declines, it could weigh on overall earnings.
Interest Rate Sensitivity
Higher interest rates tend to put pressure on utilities, as rising bond yields make dividend stocks less attractive. While Otter Tail has a relatively low debt load, it’s still something to keep in mind if rates remain elevated.
Recent Earnings Declines
While the company remains highly profitable, quarterly revenue fell by 3.6% year-over-year, and earnings dropped by 5%. While not alarming yet, continued weakness in earnings growth could limit future dividend increases.
Final Thoughts
Otter Tail Corporation offers a strong mix of stability and dividend growth potential. Its low payout ratio, healthy cash flow, and reasonable valuation make it a solid choice for investors seeking reliable income. While the yield isn’t as high as some other utility stocks, the company’s financial discipline and steady growth suggest it can keep delivering returns for long-term shareholders.
For those who prefer a dividend stock with both a defensive utility foundation and some industrial upside, Otter Tail stands out as an interesting option in today’s market.
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