Source: DTE Energy Company 

DTE Energy Company (NYSE:DTE) will deliver its Q2 earnings report Thursday morning, divulging the latest details of this dividend stock. With earnings disappointments for the last two quarters, can DTE Energy Company turn things around for Q2? Here's what you need to know.

Haywire History

Some companies exceed earnings expectations quarter after quarter. Not so for DTE Energy Company.

In the past 10 quarters, DTE has beat estimates 60% of the time. The second and third quarters of 2013 saw DTE disappoint on adjusted earnings per share (EPS) by 19% and 7%, respectively. Lately, however, the dividend stock has seen swollen earnings. Q4 2013 earnings came in 7% ahead of expectations, and Q1 2014 exceeded by 15 %.

Looking ahead, expectations for Q2 are set at $0.76 per share. That's $0.14 per share above 2013's second quarter earnings, but a dime below 2012's .

DTE's inconsistent quarters should keep investors ready for the best or worst. Without a steady earnings history, we'll need to look elsewhere for hints on the outlook for Q2.

Michigan Machine?

While DTE Energy operates in 22 states , the vast majority of its sales are tied directly to Michigan. The company's Michigan-based regulated DTE Electric utility brought in $5.2 billion in 2013 sales , while its state gas subsidiaries raked in $1.5 billion for the same period .

Those segments alone make up 70% of sales, and DTE was quick to point out in its Q1 report that things are looking up for the Great Lake State long term.


Source: DTE Energy Company Q1 Earnings Presentation 

But for Q2, Michigan's economic indicators don't give reason to expect much energy expansion.

The state's unemployment rate has barely budged over the last few months, while home prices have soared. That hints at a lackluster job market and stifled housing market. The Philly Fed's overarching leading index, which combines several important economic indicators, tells a similar tale of slowing growth .

Michigan Unemployment Rate Chart

Great Expectations

In January, Moody's upgraded DTE Energy's credit rating. Beyond a general observation that U.S. regulated utilities are in a better position than they've been in the past, the agency noted :

"Michigan provides a regulatory environment that we believe is above average among in the US in terms of supportiveness to long-term credit quality. The utilities benefit from enhanced recovery mechanisms such as forward-looking adjustment clauses for the cost of gas, fuel and purchased power, transmission and emissions credits, decoupling mechanisms, and a 20-year levelized surcharge (currently set at $3 per month for residential customers) to recover the cost required to comply with the Michigan Renewable Portfolio Standard Rules ."

While it's impossible to differentiate causation from correlation, DTE's stock has held its own against the S&P 500 (SNPINDEX:^GSPC) since the announcement – more than can be said for the Dow Jones U.S. Utilities Index .

DTE Chart

But Moody's isn't going to forget about DTE. At the time of its upgrade, the rating agency warned that it will be keeping a close eye on the company's cash and debt . If its cash flow declines or its debt rises unreasonably, it could mean a downgrade.

That puts DTE Energy in a tricky spot. The company currently offers an enticing 3.6% dividend yield, but last quarter saw the company pour a disproportionately large amount of cash straight into dividends . DTE wants to continue to grow its payout, but it'll face a credit downgrade if it lets its cash reserves dwindle. Investors will want to keep an especially close eye on this metric in the coming quarters.

Foolish Bottom Line

Quarter-to-quarter stock traders are subject to ups and downs, while fortune tends to favor long-term dividend stock investors. DTE Energy Company's strong Q1 earnings and upgrade expectations give it a tough act to follow. Past earnings performance also doesn't do much to boost my investor confidence. But if DTE Energy keeps cash coming and makes smart dividend choices, it'll continue to be an enticing option for any income investor's portfolio.

Don't Stop With DTE Energy's Dividend

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Justin Loiseau has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.