DTE Energy (DTE) Hikes Quarterly Dividend Payout By 5.5%

The board of directors of DTE Energy Company (NYSE:DTE) approved a 5.5% increase in its quarterly dividend rate. The revised dividend of 77 cents per share will be distributed on Oct 15, 2016, to shareholders of record at the close of business on Sep 19.

The latest hike marks a 4 cent per share increase from the previous dividend of 73 cents per share and reflects management's confidence in its long-range growth plan. The new annualized dividend amounts to $3.08, up from $2.92 paid earlier, and results in a dividend yield of 3.27%.

DTE Energy’s management has persistently raised the dividend payout for the last seven years, which is in line with its long-term earnings expectations. The company has paid quarterly cash dividends for more than 100 years now.

DTE ENERGY CO Price

Regular dividend hikes reflect the company’s solid business strategy, which also ensures steady earnings. In addition, DTE Energy has a well-planned capex program that not only translates into earnings growth, but also paves the way for incremental dividends, going forward.

Long Term Goal

DTE Energy is focused on improving its cost structure and directing capital investments toward renewable generation, strengthening its infrastructure and adding assets to comply with emission standards. Focus on the cost structure and operational improvements will help the company attain its long-term earnings growth target of 5–6%. Improving economic fundamentals in Michigan are an added stimulus for the company, which will likely boost utility demand in the state.

Moreover, DTE Energy expects an investment of at least $8.2 billion in its electrical distribution system over the 2016–2020 period as part of its $18 billion capex plan for the next 10 years. This includes $3.8 billion for maintenance and other projects, $3.2 billion for distribution infrastructure, and $1.2 billion for new generation. Addition of utility infrastructure will enable the company to meet increasing customer demand.

Financial Position

DTE Energy maintains a stable liquidity position and cash generating capacity. As of Mar 31, 2016, the company had available liquidity of around $1.6 billion. Cash from operations in the first quarter of 2016 was $741 million. Also, the company utilized $131 million to pay dividends while its free cash flow was nearly $317 million. We believe that the company’s strong cash generation capacity enables it to easily increase its dividend rate at regular intervals.

Similar Moves by Other Utilities

Backed by a strong financial position, other utilities have already taken similar steps. On Apr 21, 2016 the board of directors of Southern Company (NYSE:SO) has raised its dividend to 56 cents per share, marking a 3.2% increase from the previous payout.

On Feb 10, 2016, the board of directors of AGL Resources Inc. (NYSE:GAS) has also approved an increase of 8 cents per share or 4% in the annual dividend rate on the company's common stock. Similarly, on Feb 12, 2016, the board of directors of NextEra Energy, Inc. (NYSE:NEE) declared a quarterly common stock dividend of 87 cents per share, up 13% from the previous quarter’s payout.

DTE Energy currently carries a Zacks Rank #2 (Buy).