Smart Dividend Portfolio Edition #39: Powering Profits
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Dear Investor,
Welcome to the 39th edition of TipRanks’ Smart Dividend Portfolio & Newsletter.
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Market-Moving News: December 16, 2024
Stocks finished the week with mixed results, as the S&P 500 (SPX) declined by 0.64% and the Dow Jones Industrial Average (DJIA) tumbled by 1.82%, its worst performance since October. Meanwhile, the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) gained for the fourth consecutive week, rising by 0.34% and 0.73%, respectively.
Last week’s tech benchmarks’ outperformance was largely a “one-man show,” as it was driven by Friday’s surge in shares of Broadcom, whose outlook for booming AI chip demand lifted stocks across semiconductor and hardware industries. Outside of the Hardware Storage & Peripherals, other S&P IT sector industries were in the red for the week.
Moreover, according to Bespoke Investment Group analysis, there were more decliners than gainers in all trading sessions in December so far, the longest such streak since the early 2000s. Many analysts sounded their concern about the return of the large-cap tech’s narrow market leadership, which could dent the viability of the stock-market rally.
Still, the Federal Reserve’s widely expected rate cut this week could support the stocks well into 2025, taking into account the traditional Santa rally that should also help investor optimism. Analysts from leading Wall Street investment firms anticipate that the S&P 500 build on its 27% climb so far in 2024, with some targeting gains of over 40% by year-end.
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This Week’s Quality Dividend Stock Idea
DTE Energy (DTE) is a Detroit-based diversified energy company involved in the development and management of energy-related businesses and services nationwide. Its operating units include an electric company and a natural gas company, as well as non-utility businesses focused on industrial energy services, renewable natural gas, and energy marketing and trading.
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Powering Michigan for Over a Century
Founded in 1903, DTE Energy began as the Detroit Edison Company, providing electric power to the rapidly growing industrial region of Southeast Michigan. By the early 20th century, Detroit Edison expanded its generation capacity to meet increasing demand, playing a pivotal role in supporting Michigan’s automotive boom. In 1996, the company restructured and established DTE Energy as its parent holding company, reflecting its diversification into natural gas and non-utility energy businesses.
Throughout the late 1990s and early 2000s, DTE grew its portfolio through acquisitions, strengthening its position in the gas utility market. In the 2010s and 2020s, DTE Energy continued to expand its operations through strategic acquisitions and investments, particularly in renewable energy and midstream natural gas infrastructure.
Though the company invested in natural gas assets to bolster its midstream operations, in 2021 DTE spun off its midstream business into a separate entity, DT Midstream. The spinoff was a strategic move to streamline DTE Energy’s operations and transform it into a nearly pure-play regulated utility focused on electric and natural gas distribution. Simultaneously, DTE accelerated its clean energy initiatives by investing in wind and solar projects, as well as battery storage systems.
In the past five years, DTE has focused on substantial investments to modernize its infrastructure and expand its renewable energy portfolio, rather than pursuing major acquisitions. Notable initiatives included investment in the establishment of new solar parks, modernization of electric grids, as well as improving and expanding its electric and natural gas infrastructure.
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A Key Player in U.S. Energy
DTE Energy’s operations are divided into two main segments: regulated utility services and non-regulated energy businesses. Since the 2021 spin-off of DT Midstream, which transformed the company into a predominantly regulated electric and natural gas utility, DTE’s non-regulated businesses contribute less than 10% of the company’s total earnings.
The regulated DTE Energy Utilities segment includes two main subsidiaries: DTE Electric and DTE Gas. DTE Electric generates, transmits, and distributes electricity to 2.3 million customers in southeastern Michigan. With an 11,084 MW system capacity, it is Michigan’s largest electric utility and among the largest in the nation. Its Fermi 2 nuclear plant represents 30% of Michigan’s nuclear generation capacity, producing enough electricity for a city of one million.
DTE Gas purchases, stores, transmits, and distributes natural gas to 1.3 million customers in Michigan. DTE pipelines connect customers to energy sources across the U.S. and Canada, including Texas, Appalachia, and the Rockies.
Michigan’s unique geology gives it the largest underground natural gas storage capacity in the U.S. DTE Gas owns 278 storage wells, accounting for 34% of Michigan’s total working gas storage capacity, highlighting its key role in the state’s infrastructure.
DTE’s non-regulated businesses focus on natural gas midstream operations (pipeline, storage, and transportation) and renewable energy. These businesses extend DTE’s operations to 21 states. Key subsidiaries include DTE Energy Supply, which provides natural gas services to commercial and industrial clients in the Midwest and Northeast; Midwest Energy Resources Company, which handles coal transportation across the Great Lakes; and DTE Vantage, which specializes in renewable energy and custom energy solutions.
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Consistent Earnings Growth
DTE Energy has demonstrated a consistent growth trend, more than tripling its market capitalization over the past two decades. The company has achieved a remarkable rate of expansion for a utility company. DTE has been helped by strategic investments and operational efficiencies, as well as by a supportive regulatory environment in Michigan and increased energy demand in the areas with high concentrations of data centers, such as Southfield, Grand Rapids, and others.
Today, with a market cap of over $25.1 billion and annual revenues of $12.75 billion, DTE ranks #318 on the Fortune 500 list of the largest U.S. corporations.
DTE Energy has a substantial debt load, which is primarily due to significant investments in infrastructure and clean energy projects aimed at enhancing service reliability and meeting regulatory requirements. Despite this high debt, DTE maintains favorable credit ratings: “BBB” at Fitch and S&P, and “Baa2” at Moody’s.
The favorable views of the credit-rating agencies are supported by DTE’s increasing operational efficiency and investment in projects that are designed to drive sustained long-term growth. In addition, a significant portion of DTE’s operations are regulated utilities, which provide stable and predictable cash flows. DTE Energy also demonstrates robust profitability, with ROE and ROA higher than the sector’s averages.
Additionally, DTE’s strategic investments are expected to generate returns that improve financial metrics over time, contributing to its ability to manage debt effectively. This outlook is supported by the company’s recent track record: while DTE’s revenues slightly declined over the past three years due to factors like asset divestitures and market volatility, its earnings-per-share grew at a CAGR of nearly 18%, thanks to a strategic focus on operational efficiency and stable utility operations.
This trend has continued in Q3 2024, DTE’s latest reported quarter. While revenue was almost flat year-over-year, operating EPS (non-GAAP) surged by over 54%, a fourth consecutive quarter of high double-digit growth. Moreover, the company surpassed analysts’ operating EPS estimates in 10 out of the last 12 quarters. DTE Electric continued to be the primary driver of growth in all quarters of 2024. The company confirmed its 2024 operating EPS guidance of $6.54-6.83, representing a YoY increase of nearly 17% at midpoint.
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Shareholder Returns In Focus
The company’s strong earnings growth supports its comprehensive capital allocation strategy that emphasizes substantial investments in infrastructure expansion and modernization, including electric and natural gas grids along with solar parks and storage facilities. The strategy also puts a strong focus on shareholder compensation through dividend payments.
DTE Energy has been paying dividends for almost 40 years, increasing its payouts consistently for the past 15 years. The payout has grown at a CAGR of ~6% over the past decade, with analysts penciling in a similar rate of growth over the next several years. The latest dividend hike was announced in October, with the next payout (in January 2025) raised by nearly 7%. DTE’s current dividend yield of 3.4% is notably higher than the Utilities sector average.
In the past year, the company’s stock has risen by about 10%, underperforming most of its comparable peers while following the same trend. The underperformance can be attributed to some regulatory challenges at the end of 2023, which have since subsided, and DTE’s substantial capex spending. As the company prioritizes investments for long-term growth over short-term performance, it does not allocate capital to buybacks, which could drive the share price higher. On the other hand, DTE also foresees little to no equity issuances in the next few years, avoiding shareholder dilution.
All in all, DTE Energy’s shares are quite inexpensive compared to the Utility sector average and are outright cheap versus the multiples of its industry firms, coming at the very bottom of the peers’ valuation table. Moreover, based on future cash flows, the company appears to be undervalued by about 20%. The average price target given by top Wall Street brokerages implies a ~15% upside in the next 12 months.
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Investing Takeaway
DTE Energy is a leading regulated utility focused on electric and natural gas services, complemented by non-regulated energy businesses. With a strong presence in Michigan and growing energy demand driven by data center hubs, DTE benefits from stable, predictable cash flows supported by a favorable regulatory environment. The company’s consistent earnings growth is driven by strategic investments in infrastructure modernization and clean energy initiatives, positioning it for sustained long-term performance. For dividend investors, DTE offers a compelling opportunity, boasting a substantial dividend yield and a 15-year track record of consecutive dividend increases. Trading at the bottom of peer valuation metrics, DTE Energy presents attractive upside potential for income-focused investors seeking growth and dependable returns.
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Dividend Investor Portfolio
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Portfolio News
▣ The ex-dividend date for VICI Properties (VICI) is December 17th.
▣ The proposed $24.6 billion merger between Kroger Company (KR) and Albertsons was blocked by a federal judge on December 10th. The U.S. District Court in Oregon sided with the Federal Trade Commission, which had argued that the merger would reduce competition. In response to the failed merger, Kroger announced a new $7.5 billion share repurchase program, replacing its previous $1 billion authorization from 2022. Kroger stock surged on the news, as the massive buyback program is seen by analysts and investors as a strategy to return value to shareholders following the merger’s collapse.
▣ JPMorgan Chase & Co. (JPM) anticipates a 45% year-over-year increase in investment banking fees for the fourth quarter of 2024, signaling a robust rebound in dealmaking activities on Wall Street. This anticipated surge follows a 31% increase in investment banking fees during the third quarter. In addition to investment banking, JPMorgan forecasts a 15% rise in trading fees for the fourth quarter, further contributing to its revenue growth. These positive trends underscore the bank’s strong position in capitalizing on the resurgence of financial market activities.
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Recent Trades
None at the moment, although we are constantly evaluating stocks for a possible addition to the portfolio. Stay tuned.
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Portfolio Attributes
| Dividend Portfolio Yield |
Expected Dividend Growth | Expected Annual Income |
| 3.80% | +9.48% | $4,976.56 |
| Yield-on-Cost Adjusted, Weighted |
Average Analyst 12-Month Growth Outlook | 10K Per Stock at the Time of Purchase |
Current Portfolio
| Name | EX-Dividend Date | Payment Date | Yield on Cost | Annual DPS |
| Automatic Data Processing (ADP) | Dec 06, 2024 | Jan 01, 2025 | 2.24% | $5.60 |
| Allianz SE ADR (ALIZY) | May 09, 2025 | May 28, 2025 | 5.67% | $1.49 |
| Amgen (AMGN) | Feb 17, 2025 | Mar 07, 2025 | 3.09% | $9.00 |
| BlackRock (BLK) | Dec 08, 2024 | Dec 23, 2024 | 2.56% | $20.40 |
| Edison International (EIX) | Dec 27, 2024 | Jan 31, 2025 | 4.82% | $3.12 |
| EOG Resources (EOG) | Dec 13, 2024 | Dec 30, 2024 | 3.95% | $3.64 |
| IBM (IBM) | Feb 10, 2025 | Mar 10, 2025 | 3.13% | $6.68 |
| JPMorgan Chase (JPM) | Jan 06, 2025 | Jan 31, 2025 | 2.86% | $5.00 |
| Kroger (KR) | Feb 15, 2025 | Mar 01, 2025 | 2.82% | $1.28 |
| LyondellBasell (LYB) | Mar 10, 2025 | Mar 17, 2025 | 5.27% | $5.36 |
| Philip Morris (PM) | Dec 20, 2024 | Jan 10, 2025 | 6.06% | $5.40 |
| Qualcomm (QCOM) | Dec 05, 2024 | Dec 19, 2024 | 2.25% | $3.40 |
| VICI Properties (VICI) | Dec 17, 2024 | Jan 09, 2025 | 5.19% | $1.72 |
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Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment, and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
