We have maintained our Neutral recommendation on DTE Energy Company (DTE) on Sep 24, 2013.
Why the Reiteration?
DTE Energy is focused on improving its cost structure and directing capital investments toward renewable generation, utility infrastructure and environmental compliance assets. A focus on cost structure and operational improvements will help the utility attain a 5% – 6% long-term EPS growth target and shareholder return in the range of 9% to 10%.
DTE Energy’s strong balance sheet and cash flows provide substantial financial flexibility and cushion in the present challenging business environment. Moreover, the company continues to return shareholder wealth through dividend payouts. The company pays a quarterly dividend of 65.5 cents per share generating a dividend yield of 3.97%. The company targets a dividend payout ratio of 60.0% to 70.0%.
Key growth drivers for the company are its stable and growing utilities, and its complementary non-utility businesses. Going forward, the growth momentum will be maintained by higher authorized rates for its regulated business and growth opportunities in its un-regulated businesses.
Despite these positives, the present unfavorable macro backdrop, lower demand for electricity, the slowly recovering economy in Michigan, soft second quarter results and pending regulatory cases remain matters of concern. The year-over-year decline in the second quarter reflected lower weather-related electric sales.
Other Stocks to Consider
DTE Energy presently has a Zacks Rank #4 (Sell). Stocks that are worth considering in the space are Alliant Energy Corp. (LNT), Brookfield Infrastructure Partners L.P. (BIP) and Integrys Energy Group, Inc. (TEG), all with a Zacks Rank #2 (Buy).