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DTE Energy’s 12-Month Returns Track Utilities Sector

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Market performance

Investors are hoping DTE Energy’s (DTE) rally will last a tad longer as it nears its all-time high. It’s trading just a couple of percentage points lower than its previous high of $91.20 in mid-January. So far in 2016, it has rallied 14%, while utilities rose 12%.

In the last 12-month period, DTE Energy has returned nearly 16%, while CMS Energy (CMS) managed to return 26%.

The graph below shows the comparative stock price movement of DTE, CMS, and XLU.

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Capital expenditure

DTE Energy’s gas operations are expected to grow faster than its electric operations in the next five years. DTE plans to spend $1.6 billion, nearly double the previous year’s amount, on gas infrastructure, particularly on pipeline safety. DTE’s spending on its electric segment increased marginally in 2015 and may continue to rise minimally this year. This indicates the company’s focus on gas operations due to its slow-growing electric business.

In order to increase the gas business, large-cap utilities are actively doing mergers and acquisitions. Mid-sized utilities are investing in improving their gas infrastructures. Dominion Resources (D) is acquiring Questar (STR), and Southern Company (SO) is in the final steps of acquiring AGL Resources (GAS).

DTE Energy’s total planned capital spending for the next ten years is $18 billion. Most of the funds are allocated to distribution infrastructure and maintenance. Spending on capital projects can be recovered through investment recovery mechanisms.

These investments are expected to improve DTE’s operational efficiency as well as geographical proximity. The falling contribution from its electric business may be a good sign for DTE, as the wider energy portfolio minimizes risk through diversification.

In the final part of our series, we’ll see why DTE Energy is eying ordinary growth in the midst of multiple challenges.

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