The board of directors of diversified energy company DTE Energy (DTE) approved a 5.3% sequential increase in its quarterly dividend rate. The revised dividend of 69 cents will be distributed on Oct 15, 2014, to shareholders of record at the close of business Sep 15, 2014.
The annualized dividend of $2.76 per share reflects a dividend yield of 3.55%, much higher than the industry average of 1.91%. DTE Energy’s management has been hiking dividends for the last five years, with an average increase of 5.4% over the frame. DTE aims for long-term earnings growth in the range of 5% to 6% and expects to increase its dividend in line with earnings.
The regular dividend hikes reflect the company’s solid business strategy, which also ensures steady earnings. In addition, the company has a well-planned capex program that translates into earnings growth and paves the way for incremental dividends going forward.
The company plans to invest nearly $7.9 billion over the 2014-2018 period and is focused on strengthening its existing infrastructure and providing better services to its customers at affordable rates. A constructive regulatory environment will allow DTE Energy to recover the capital invested through regulatory filings.
In 2013, DTE Energy paid cash dividends of $445 million. For 2014, the company will require $488 million for its promised payouts considering that shares outstanding remains unchanged. We believe the strong cash generation capacity of DTE Energy will enable it to easily pay the increased dividend.
In the first quarter of 2014, DTE Energy utilized $166 million to repurchase shares and pay dividends, while its net operating cash flow in the reported quarter was $532 million. We believe DTE Energy is on course to achieve its cash from operations target of $1.6 billion in 2014.
DTE Energy currently has a Zacks Rank #2 (Buy). Other better-ranked players in the utility industry include Entergy Corporation (ETR), NRG Energy, Inc. (NRG) and Huaneng Power International, Inc. (HNP). All of these stocks currently sport a Zacks Rank #1(Strong Buy).