Last update on 2024-06-27

DTE Energy (DTE) - Dividend Analysis (Final Score: 6/8)

In-depth analysis of DTE Energy's (DTE) dividend policy, scoring 6/8. Insights on sustainability, coverage, and historical stability. Learn more in our thorough review.

Short Analysis - Dividend Score: 6

We're running DTE Energy (DTE) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

DTE Energy's dividend performance and stability have been evaluated based on an 8-criteria scoring system, achieving a score of 6 out of 8. The company's dividend yield (currently at 3.518%) is higher than the industry average and generally competitive, providing attraction to dividend investors. However, the average annual growth rate of dividends over the past 20 years is inconsistent and has not always exceeded 5%, reflecting volatility. Positively, the average payout ratio remains below the 65% threshold, showcasing sustainable dividend payments, but the dividends are inadequately covered by earnings in certain years. Additionally, while dividend coverage by free cash flow has shown considerable volatility, it has been more frequently negative in recent years, which raises concerns regarding long-term sustainability. Dividend history shows stability with occasional significant drops, but generally positive long-term upward trends. The company has consistently paid dividends for over 25 years, reflecting commitment to shareholder returns. However, DTE Energy's inconsistent history of stock repurchases over 20 years suggests that share buybacks are not a priority, leading to concerns about capital management.

Insights for Value Investors Seeking Stable Income

Considering the analyses, DTE Energy (DTE) presents a somewhat mixed prospect for dividend-focused investors. While the company shows a strong, consistent dividend history and a sustainable payout ratio, the inconsistent dividend growth rate and fluctuating, sometimes negative cash flow coverage are significant concerns. The lack of consistent stock repurchases may also deter some investors. Therefore, DTE Energy might be worth looking into if you prioritize a long history of dividend payments and a higher-than-average yield, but proceed with caution due to the highlighted volatilities and potential sustainability issues. Further detailed analysis would be beneficial before making an investment decision.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield measures how much a company pays out in dividends relative to its stock price. A higher yield can be attractive to income-focused investors but may also indicate a higher risk.

DTE Energy's current dividend yield of 3.518% is higher than the industry average of 3.12%. Historically, DTE's yield has generally stayed above 3%, peaking at 5.9433% in 2008. This suggests a consistent dividend policy. However, the decreasing trend from 5.9433% to 3.518% could be concerning unless paired with strong stock price appreciation. Comparing with the 20-year industry average, it historically remained competitive. Given the higher-than-average yield, DTE remains appealing to dividend investors, though analyzing stock price and payout ratio would give a fuller picture.

Average annual Growth Rate higher than 5% in the last 20 years?

The criterion assesses the company's ability to consistently increase its dividends over 20 years, ensuring long-term shareholder returns.

Reviewing DTE Energy's (DTE) dividend per share ratio over the last 20 years, the company's average dividend growth has not consistently exceeded 5%, evidenced by fluctuations and negative values in some years. For instance, in 2019, the ratio dropped significantly to -16.9059, while in other years, it showed considerable growth, such as 2017 with a ratio of 41.6498. Based on this data, the trend is inconsistent and fails to meet the criterion for sustained growth above 5%. While some years show promising dividend increases, the overall volatility does not provide a stable outlook for long-term dividend growth.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio measures the proportion of earnings paid out as dividends to shareholders. It is important for sustainability of dividends.

The average payout ratio for DTE Energy over the last 20 years is approximately 56.68%, which is below the 65% threshold. This is a positive trend, as it indicates that DTE Energy is maintaining a sustainable level of dividend payments, leaving ample room for reinvestment and growth. It's particularly reassuring that the payout ratio has generally stayed below 65% despite slight spikes in certain years, indicating prudent financial management.

Dividends Well Covered by Earnings?

Dividends must be covered adequately by earnings to ensure sustainability. A higher coverage ratio indicates better safety of dividends.

Analyzing the period from 2003 to 2023, we observe that the dividend coverage ratio for DTE Energy (DTE) fluctuates between approximately 0.32 and 0.76. While a lower ratio might be concerning, DTE Energy has shown resilience in covering its dividends over time. Key metrics include 2007 with a coverage of 0.32 and 2021 with a ratio of 0.76. The general trend suggests that DTE's earnings have adequately covered dividends, indicating a mostly positive trend. However, years like 2007 and 2012 reveal the periods where the coverage was relatively low, which can be alarming. Overall, DTE Energy's commitment to maintaining a covered dividend strategy is apparent and, broadly speaking, beneficial.

Dividends Well Covered by Cash Flow?

Free Cash Flow (FCF) plays a crucial role in assessing the ability of a company to pay dividends. Positive FCF indicates that the company generates enough cash after accounting for capital expenditures, which can be used to pay dividends to shareholders. Calculating the coverage ratio helps in understanding how well the dividends are supported by the firm's cash flow.

The coverage of DTE Energy's dividends by free cash flow has shown considerable volatility over the past two decades. It peaked at 13.62 times in 2016, indicating very robust coverage of dividends at that time. However, there have been several years with negative coverage ratios (e.g., -5.63 in 2005, -4.60 in 2015, and -1.05 in 2023), signaling that free cash flow was insufficient to cover the dividends in those years. Most notably, the trend from 2018 onwards shows consistently negative coverage ratios. This indicates a deteriorating ability to cover dividends from cash flow and raises red flags about the sustainability of dividend payments in the long run. It's a negative trend that stakeholders should keenly monitor.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends refer to the consistency in the payments made to shareholders over time. Specifically, a 20% or greater drop in dividend per share within the assessment period is a red flag. Assessing for drops greater than 20% helps determine if income might be unpredictable, which is critical when evaluating a company for income stability.

Over the past 20 years, DTE Energy (DTE) has demonstrated variable dividend payments, with significant fluctuations noted in certain years. While the gradual increase from 1.7532 in 2003 to 3.879 in 2023 indicates overall growth, the significant reduction seen in 2019 when the dividend per share dropped to 3.2749 from 3.9412 in 2018 marks a decline exceeding 20%. This decline interrupts the expectation for income stability that many income-seeking investors prioritize. Furthermore, from 2015 to 2016, there was an unusual jump from 2.6 to 3.6829, which is not typical of stable dividend growth. Although the upward trajectory and recovery to 3.879 in 2023 is noted, the instability evidenced in these drops highlights concerns for investors looking for consistent income.

Dividends Paid for Over 25 Years?

Examining whether DTE Energy has paid dividends consistently for over 25 years is crucial for assessing its reliability and commitment to returning value to its shareholders.

DTE Energy has demonstrated an impressive track record of consistently paying dividends for over 25 years. Starting with $1.7532 per share in 1998, the company has shown remarkable year-over-year increases, reaching up to $3.879 per share in 2023. This consistent upward trend indicates DTE's strong, ongoing commitment to return value to its shareholders. The trend is definitely good by this criterion as it reflects financial stability and a shareholder-friendly policy.

Reliable Stock Repurchases Over the Past 20 Years?

Evaluating the company's history of stock repurchases over two decades provides insight into its capital allocation strategy. Consistent buybacks are typically seen positively as they can indicate confidence in the company's future and return capital to shareholders.

Over the last 20 years, DTE Energy (DTE) has not demonstrated a consistent pattern of stock repurchases. There were only two notable years – 2007 and 2008 – where shares were significantly reduced from 178,000,000 to 170,000,000 and from 170,000,000 to 163,000,000 respectively. Post-2008, share counts have generally increased, peaking at 206,000,000 in 2023. This indicates that DTE may not prioritize returning capital to shareholders through buybacks, and the trend signifies a dilution rather than consolidation. The average repurchase rate of 1.0505 is quite minimal, reflecting an inconsistent buyback strategy. This lack of reliable buybacks over the past two decades is generally seen negatively in terms of capital management and shareholder value creation.