NextEra Energy Inc: Providing More Than Just Dividends?
Why NextEra Stock Is Special
Income investors love large-cap, blue-chip companies because many of these are capable of producing a steadily increasing stream of dividends.
On the flip side, these companies are not really known for having soaring share prices. If an investor wants to earn out-sized capital gains, they usually have to go to the more volatile sectors of the stock market, like technology.
And that’s why NextEra Energy Inc (NYSE:NEE) stands out.
As an electric utility with market capitalization of over $110.0 billion and a history that can be traced all the way back to 1925, NextEra Energy is one of the mega-cap blue-chip stocks.
And yet, in the last five years, the company’s share price has skyrocketed 140%.
To put that in perspective, the S&P 500 Index delivered a total return of 52.6% during this period. So, NEE stock substantially outperformed the benchmark index.
Meanwhile, NextEra Energy also excels at what investors expect a mega-cap utility company to do—providing a rising passive income stream to shareholders.
Consider the fact that, five years ago, NEE stock had a quarterly dividend rate of $0.7250 per share. And today, the amount stands at $1.25 per share, translating to a total increase of 72.4%. (Source: “Dividend History,” NextEra Energy Inc, last accessed October 23, 2019.)
In other words, investors in NextEra stock have not only seen the value of their investments going up tremendously, but have also collected much bigger dividend checks along the way.
Of course, we know that there is an inverse relationship between a company’s dividend yield and stock price. So, as NEE stock shot through the roof, its yield became subdued.
But there is another force at work here: dividend increases.
Because NextEra stock’s payout has been on the rise as well, it can still offer a decent yield to today’s income investors. With NEE stock trading at $236.00 at the time of writing, the company has an annual dividend yield of 2.1%.
Again, comparing that to the benchmark index, we see that NEE stock is more generous than the average S&P 500 company, which yields 1.9%. (Source: “S&P 500 Dividend Yield,” Multpl.com, last accessed October 23, 2019.)
And if you are a risk-averse income investor, you’d be glad to know that NextEra’s dividends are backed by a rock-solid business.
NextEra Energy Inc Pays Rock-Solid Dividends
As I mentioned earlier, NextEra is an electric utility. In particular, the company owns Florida Power & Light Company, which serves more than five million customer accounts in Florida.
Notably, NextEra Energy has a strong focus on clean energy. Through its subsidiaries, the company generates emissions-free electricity from eight commercial nuclear power plants in Florida, New Hampshire, Iowa, and Wisconsin. At the same time, NextEra’s subsidiary NextEra Energy Resources LLC is one of the world’s largest generators of renewable energy from wind and solar.
One of the main reasons why the company can raise its dividends substantially, and why the market has loved NEE stock so much, was the sheer growth in its business.
In 2018, NextEra Energy generated adjusted earnings of $7.70 per share, representing a 15% increase from 2017. (Source: “NextEra Energy reports 2018 fourth-quarter and full-year financial results,” NextEra Energy Inc, January 25, 2019.)
Considering that the company declared and paid four quarterly dividends totaling $4.44 per share last year, its adjusted profits easily covered the payout.
Fast forward to this year, and things look equally impressive.
NextEra reported third-quarter earnings last week. During the quarter, the company earned adjusted net income of $2.39 per share. Compared to the $2.17 per share earned in the third quarter of 2018, that’s a year-over-year improvement of 10.1%. (Source: “NextEra Energy reports third-quarter 2019 financial results,” NextEra Energy Inc, October 22, 2019.)
Looking at dividend safety, we see that NextEra Energy’s adjusted earnings came in at $6.94 per share in the first nine months of 2019. Its dividend payments, on the other hand, totaled $3.75 per share during this period. Therefore, despite all the dividend hikes over the years, NEE stock’s payout ratio came out to just 54% so far into 2019.
What really cheered up investors, though, was the company’s guidance.
In the latest earnings release, management said that NextEra Energy’s full-year adjusted earnings per share are expected to be “at or near the top” of their previously issued guidance range of six- to eight-percent growth from 2018. If the company achieves that guidance, it would generate adjusted earnings of $8.32 per share. (Source: Ibid.)
Better yet, management also projected that NextEra Energy’s adjusted earnings per share would increase at a compound annual growth rate of six to eight percent through 2021, plus its Florida acquisitions would add another $0.15 and $0.20 per share to the bottom line in 2020 and 2021, respectively. And, by 2022, the company’s adjusted earnings are expected to reach a range of $10.00 to $10.75 per share.
Bottom Line on NEE Stock
When a dividend growth stock has a conservative payout ratio and a growing business, what do you think will happen?
I’d say there are plenty of dividend hikes on the way. And as NextEra Energy Inc keeps churning out impressive financials, NEE stock could keep traveling on its upward trend.