Otter Tail (NASDAQ: OTTR) and American Electric Power (NYSE:AEP) are both utilities companies, but which is the superior investment? We will contrast the two companies based on the strength of their profitability, dividends, institutional ownership, earnings, analyst recommendations, risk and valuation.

Profitability

This table compares Otter Tail and American Electric Power’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Otter Tail 8.53% 10.47% 3.68%
American Electric Power 12.21% 9.67% 2.73%

Earnings and Valuation

This table compares Otter Tail and American Electric Power’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Otter Tail $803.54 million 2.28 $62.32 million $1.80 25.78
American Electric Power $16.40 billion 2.31 $610.90 million $3.82 20.18

American Electric Power has higher revenue and earnings than Otter Tail. American Electric Power is trading at a lower price-to-earnings ratio than Otter Tail, indicating that it is currently the more affordable of the two stocks.

Insider and Institutional Ownership

41.1% of Otter Tail shares are owned by institutional investors. Comparatively, 71.2% of American Electric Power shares are owned by institutional investors. 1.4% of Otter Tail shares are owned by insiders. Comparatively, 0.2% of American Electric Power shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Dividends

Otter Tail pays an annual dividend of $1.28 per share and has a dividend yield of 2.8%. American Electric Power pays an annual dividend of $2.48 per share and has a dividend yield of 3.2%. Otter Tail pays out 71.1% of its earnings in the form of a dividend. American Electric Power pays out 64.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. American Electric Power has raised its dividend for 4 consecutive years. American Electric Power is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Ratings

This is a breakdown of current ratings and recommmendations for Otter Tail and American Electric Power, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Otter Tail 0 2 1 0 2.33
American Electric Power 0 8 5 0 2.38

Otter Tail presently has a consensus target price of $41.00, indicating a potential downside of 11.64%. American Electric Power has a consensus target price of $73.91, indicating a potential downside of 4.11%. Given American Electric Power’s stronger consensus rating and higher possible upside, analysts plainly believe American Electric Power is more favorable than Otter Tail.

Risk and Volatility

Otter Tail has a beta of 0.82, meaning that its stock price is 18% less volatile than the S&P 500. Comparatively, American Electric Power has a beta of 0.3, meaning that its stock price is 70% less volatile than the S&P 500.

Summary

American Electric Power beats Otter Tail on 12 of the 17 factors compared between the two stocks.

About Otter Tail

Otter Tail Corporation is a holding company. The Company operates through three segments: Electric, Manufacturing and Plastics. The Electric segment includes the production, transmission, distribution and sale of electric energy in Minnesota, North Dakota and South Dakota by Otter Tail Power Company (OTP). The Manufacturing segment consists of businesses in manufacturing activities, such as contract machining, metal parts stamping, fabrication and painting, and production of material and handling trays and horticultural containers. These businesses have manufacturing facilities in Georgia, Illinois and Minnesota and sell products primarily in the United States. The Plastics segment consists of businesses producing polyvinyl chloride (PVC) pipe at plants in North Dakota and Arizona. The PVC pipe is sold primarily in the upper Midwest and Southwest regions of the United States. The Company’s manufacturing and plastic pipe businesses are owned by its subsidiary, Varistar Corporation.

About American Electric Power

American Electric Power Company, Inc. (AEP) is a public utility holding company that owns, directly or indirectly, all of the outstanding common stock of its public utility subsidiaries and varying percentages of other subsidiaries. The service areas of the Company’s public utility subsidiaries cover the states of Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia. The Company’s segments include Vertically Integrated Utilities, Transmission and Distribution Utilities, AEP Transmission Holdco, and Generation & Marketing. AEP’s vertically integrated utility operations are engaged in the generation, transmission and distribution of electricity for sale to retail and wholesale customers. Transmission and Distribution Utilities segment consists of the transmission and distribution of electricity for sale to retail and wholesale customers. AEP Transmission Holdco develops, constructs and operates transmission facilities.

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