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Does DTE Energy Company’s Dividend Still Have Room to Grow?
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Does DTE Energy Company’s Dividend Still Have Room to Grow?

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DTE Energy Company (NYSE: DTE) offers investors an enviable 3.6% dividend yield – but not all dividend stocks are created equal. The world of utilities is undergoing an energy revolution, and income …

DTE Energy Company (NYSE: DTE) offers investors an enviable 3.6% dividend yield – but not all dividend stocks are created equal. The world of utilities is undergoing an energy revolution, and income investors need to take closer look to see whether DTE Energy Company's dividend is set to soar or stumble.
In the slideshow below, I'll review three of the most important indicators for dividend stocks: distribution history, cash flow, and the business itself. DTE Energy Company has some healthy offerings on the table, but it's also got some skeletons in its corporate closet.

Published in: Investor Relations

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  • Start time: 835
  • Transcript

    • 1. Does DTE Energy’s Dividend Still Have Room to Grow?
    • 2. Dividend Stocks 101 Since dividend stocks pay out on your investment, there’s no need to sell stocks to make money. Instead, dividend stock investors can enjoy a steady stream of income. Simply put: investors love dividend stocks.
    • 3. Dividend Stocks 101 By nature, dividend stocks are more stable, too. Only companies with consistent cash flow can make a dividend payout promise. And each distribution effectively reduces an investor’s risk. Simply put: investors love dividend stocks.
    • 4. Dividend Stocks 101 1) Steady Income 2) Reduced Risk It’s easy to see why dividend stocks are enviable investments.
    • 5. Dividend Stocks 101 With steady, regulated income, utilities are well known as the cash cows of dividend stocks. Utilities are especially well-known for their dividend stock status.
    • 6. Dividend Stocks 101 But: not all dividend stocks are created equal.
    • 7. Dividend Stocks 101 Today, let’s take a look at three different indicators for DTE Energy Company (NYSE: DTE) to see whether this dividend stock still has room to grown.
    • 8. 1. Dividend History 1. Dividend History Source: Wikimedia Commons; 2bgr8
    • 9. 1. Dividend History While past performance doesn’t always indicate future performance, corporations do have more control over distribution decisions than, say, where their stock is headed in the next year.
    • 10. 1. Dividend History What investors like to see is a “dividend staircase,” where corporations steadily increase their distribution over time.
    • 11. 1. Dividend History
    • 12. 1. Dividend History DTE Energy has grown its dividend since 2010 at an average annual rate of 5.4%.
    • 13. 1. Dividend History But beware the “stairway to nowhere,” when corporations keep increasing their dividend with no foundation. Which leads us to...
    • 14. 2. Cash 2. Cash Source: Wikimedia Commons; 2bgr8
    • 15. 2. Cash While cash is king for any corporation, it’s especially true for utilities. They take on major debt to fund infrastructure projects, making cash the all-important indicator of day-to-day survival.
    • 16. 2. Cash To make sure our dividend isn’t a stairway to nowhere, let’s see whether our industries’ distributions match up with their dollars using: Cash-to-Dividend Ratio
    • 17. 2. Cash Cash-to-Dividend Ratio = 𝒄𝒐𝒎𝒎𝒐𝒏 𝒔𝒕𝒐𝒄𝒌 𝒅𝒊𝒗𝒊𝒅𝒆𝒏𝒅𝒔 (𝒄𝒂𝒔𝒉 𝒇𝒍𝒐𝒘 𝒇𝒓𝒐𝒎 𝒐𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏𝒔 −𝒄𝒂𝒑𝒊𝒕𝒂𝒍 𝒆𝒙𝒑𝒆𝒏𝒅𝒊𝒕𝒖𝒓𝒆𝒔 − 𝒑𝒓𝒆𝒇𝒆𝒓𝒓𝒆𝒅 𝒅𝒊𝒗𝒊𝒅𝒆𝒏𝒅𝒔 𝒑𝒂𝒊𝒅)
    • 18. 2. Cash
    • 19. 2. Cash Uh-oh. Over the past five years, DTE has been using increasingly large chunks of its cash to keep its dividend growing.
    • 20. 2. Cash For Q1 2014, DTE Vice President and Treasurer Mark Rolling noted that recent cash proceeds were: “largely offset by higher purchases of gas and power that were needed to meet those [cold weather-induced] demands.”
    • 21. 2. Cash Although its payout ratio: ( 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 ) ...is still only slightly above the industry average at 61.5%, investors will need to watch the company’s cash situation closely in quarters to come.
    • 22. 3. The Business 3. The Business
    • 23. 3. The Business We can crunch numbers all we want, but let’s not forget to take a look at each dividend stock’s business model. With power plants, pipelines, limited partnerships, regulated businesses, and drastically different energy portfolios, each business could be ready for a boom or a bust.
    • 24. 3. The Business Regulated vs. Unregulated DTE’s two largest subsidiaries are regulated electric and gas utilities. These two businesses serve a combined three million customers throughout Michigan. Together, they pulled in $627 million of DTE’s $661 million of 2013 net income.
    • 25. 3. The Business Generation Portfolios / Transmission Projects
    • 26. 3. The Business Energy Trading DTE also has an energy trading business which, in 2013, knocked $58 million off its bottom line. For fiscal 2014, it’s supposed to break even.
    • 27. 3. The Business Energy Trading DTE has gotten some flack for this “sideline” subsidiary, but CFO Peter Oleksiak has assured investors of $20-25 million longer- term earnings, with the added intangible benefit of “a lot of good market intelligence.”
    • 28. Room to Grow? DTE Energy’s dividend is solid, but it’s probably not set to soar anytime soon. The company needs to get its cash situation under control, focus on growing its regulated businesses instead of losing out elsewhere, and continue to keep a rainy day safety net for its limited geographic diversity.
    • 29. More Dividend Stock Ideas Need more ideas for the best dividend stocks around? Look no further than our top analysts’ latest report. Just click here now.