This Utility Has a Secret Weapon

DTE isn't your run of the mill electric utility, and natural gas will be a key driver of its utility and non-utility efforts over the near and long term.

Jul 24, 2014 at 3:50PM

Utilities come in different flavors, some are regulated and some not. However, some add a little spice to the mix by getting into additional businesses. That's something that sets DTE Energy (NYSE:DTE) apart from its peers. However, it's natural gas, utility and non-utility alike, that may be the most exciting part of DTE Energy's future.

Regulated, non-regulated
DTE Energy is something of a throwback. Years ago, utilities used their regulated businesses to invest in other areas. Too often, though, those investments proved more trouble then they were worth. A good example is Vectren (NYSE:VVC), which is now exiting its commodity investments. The most recent move was to jettison its coal mining operations.

(Source: ReubenGBrewer, via Wikimedia Commons)

That $300 million sale will get Vectren out from under a struggling business. Even though Vectren's coal mines have been producing record amounts of coal they are still only breakeven—at best. Clearly, such non-utility businesses can become more of a distraction than they're worth.

DTE Energy's non utility businesses make up roughly 20% of revenues with a goal of taking that to 30%. These businesses operate in the energy trading, construction, and midstream arenas. Energy trading is volatile and the company currently expects it to contribute nothing to the bottom line this year. The benefits of having this business are arguable.

The construction business' present and future are tied to the utility industry; it builds power related assets from industrial systems to renewable generation. That's likely to be a solid opportunity as new environmental regulations lead to big changes in the energy space.

The other arm of the non-utility side, however, is the midstream business, DTE Energy's crown jewel right now. In the first quarter it contributed 50% more to earnings than the construction segment. And it has key expansion projects planned over the next three years. If the past is any indication, the future for this segment looks pretty good, too. According to CFO Peter Oleksiak, they "put the pipe into service [in] late 2012, so a little less than a year [and a] half later and we're doubling the capacity of the pipe northward." Clearly, there's demand for the pipelines DTE Energy owns.

But wait, there's more gas
That's exciting but it's only half of DTE Energy's natural gas story. For starters, the regulated side of the company's business, which is far larger than the non-regulated business, is made of electricity and natural gas. And while DTE Energy is investing on the electric side, it expects its projects on the gas side to last several decades.

Over the next three to four years DTE Energy is expecting to spend about $1.2 billion on projects such as upgrading gas infrastructure and replacing meters. Since the regulated side of the business grows earnings by spending on such projects, DTE Energy is looking at decades of potential, and notable growth ahead in this segment.

To be sure, DTE Energy isn't alone in this. For example Consolidated Edison (NYSE:ED) has been talking about its natural gas efforts too. One of the most exciting aspects for Consolidated Edison is the potential for converting oil heat users to natural gas. And it's a big opportunity to add customers, since Consolidated Edison has only completed around 15% of the potential conversions it identified in 2010.

However, underneath this is the core of replacing old and decaying gas pipelines. While this won't add customers, like DTE Energy, Consolidated Edison's spending here will likely be viewed constructively by regulators and lead to rate hikes. The deadly explosion of a 127-year-old Consolidated Edison gas main last year shows why. The natural gas infrastructure underneath our streets and homes is old and decaying, and doing nothing about it would have deadly consequences. But replacing it is a slow process.

DTE Energy is complex 
DTE Energy has a lot of moving parts and is far from your run of the mill utility. However, it's well worth a deep dive, taking particular note of its regulated and unregulated natural gas opportunities. They help underpin DTE Energy's projected earnings and dividend growth of around 5% to 6% over the next four to five years.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Reuben Brewer 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers