NextEra Energy Inc: The Most Overlooked Dividend Growth Stock?
Collect Rising Dividends From NEE Stock
Today’s chart highlights one of the most overlooked dividend growth stocks in the market, NextEra Energy Inc (NYSE:NEE).
Headquartered in Juno Beach, Florida, NextEra Energy is an electric utility with a focus on clean energy. The company operates through two main subsidiaries, Florida Power & Light Company and NextEra Energy Resources, LLC.
Serving more than five million customer accounts in Florida, Florida Power & Light is one of the largest electric utilities in the U.S. NextEra Energy Resources, on the other hand, is one of the world’s largest generators of renewable energy from wind and solar.
No doubt, the renewable energy industry has plenty of growth potential. But they are also not risk-free. In fact, we have seen plenty of cleantech companies that went bankrupt over the years. (Source: “The Cleantech Casualties of 2017,” Greentech Media, December 26, 2017.)
However, as an established utility business, NextEra Energy Inc looks solid even to the most risk-averse investor. This is because, despite its renewable energy focus, the company has no problem delivering to investors increasing cash returns through dividends.
Consider that back in 2009, NextEra Energy Inc was paying quarterly cash dividends of $0.4725 per share. Fast-forward to today and we see that the company’s quarterly dividend rate stands at $1.25 per share. That’s an increase of 165%. (Source: “Dividend History,” NextEra Energy Inc, last accessed April 29, 2019.)
Those dividend hikes were backed by growing profits. In 2018, NextEra Energy Inc earned an adjusted net income of $3.7 billion ($7.70 per share). To put this in perspective, the company’s bottom line number for 2017 was $3.2 million ($6.70 per share). (Source: “NextEra Energy reports 2018 fourth-quarter and full-year financial results,” NextEra Energy Inc, January 25, 2019.)
In other words, NEE stock’s adjusted earnings per share surged 15% last year.
Looking further back, you’ll see that from 2009 to 2018, the company’s adjusted earnings per share had nearly doubled.
Growth has continued to the current year. In the first quarter of 2019, NextEra Energy’s revenue increased 9.5% year-over-year to $4.4 billion. The company also earned an adjusted net income of $1.1 billion ($2.20 per share), a substantial improvement from the $929.0 million ($1.96 per share) earned in the year-ago quarter. (Source: “NextEra Energy reports first-quarter 2019 financial results,” NextEra Energy Inc, April 23, 2019.)
NEE delivered solid results across the board. At Florida Power & Light Company, net income grew 21.5% year-over-year to $588.0 million in the first quarter. At NextEra Energy Resources, earnings grew 13.4% from a year ago to $448.0 million.
With utility companies often considered the relatively “boring” income stocks, NextEra Energy’s growth rates are indeed quite cheerful.
The best part is, NEE stock is not done with its growth story. According to the latest investor presentation, management expects the company’s adjusted earnings per share to increase at a compound annual growth rate (CAGR) of six percent to eight percent from 2018 to 2021. (Source: “Earnings Conference Call,” NextEra Energy Inc, last accessed April 29, 2019.)
Midpoint of NextEra Energy Inc’s Adjusted Earnings Per Share Expectations
When a company with a stable business model delivers growing financials, chances are that dividend hikes are in the works. Indeed, NextEra Energy Inc’s Board of Directors raised the quarterly dividend rate by 13% earlier this year. Going forward, they expect the company’s dividend per share to increase by 12% to 14% per share through at least 2020.
Going forward, NextEra Energy Inc is well-positioned to capitalize on advancements in wind and solar technology. From 2010 to 2016, the levelized cost of electricity from wind went from $55.00-$65.00 per megawatt hour (MWh) down to $16.00-$22.00 per MWh, representing a decline of around 70%.
During this period, the levelized cost of electricity from solar experienced a drop of similar magnitude, from $140.00-$150.00 per MWh to $39.00-$47.00 per MWh. (Source: “March 2019 Investor Presentation,” NextEra Energy Inc, last accessed April 29, 2019.)
And that trend is expected to continue. By 2020, the levelized cost of electricity from wind is projected to further drop to $12.00-$18.00 per MWh, while the levelized cost of electricity from solar is expected to decrease to $25.00-$35.00 per MWh.
With continued declines in the cost of generating power from wind and solar, NextEra Energy’s business could become even more profitable down the road.
Final Thoughts on NextEra Energy Inc
With a growing business and rising shareholder payouts, NEE stock has soared quite a bit over the last several years. Due to the inverse relationship between dividend yield and stock price, the rising NextEra energy stock price means it’s not exactly a high yielder.
Trading at $191.77 per share at the time of writing, the company offers an annual dividend yield of 2.6%.
This kind of yield doesn’t really look that appealing to yield hunters. However, for investors who are seeking dividend growth, NextEra Energy Inc remains a top candidate.
The company’s $7.70 adjusted earnings per share in 2018 easily covered its four quarterly dividends totaling $4.44 per share. And for 2019, management expects to deliver a bottom line number that’s near the top of its six- to eight-percent growth guidance range.
If the company does grow its earnings by eight percent—reaching $8.32 per share in 2019—it would have no problem covering its total dividends of $5.00 per share scheduled to be paid for the year.
As it stands, NextEra Energy Inc isn’t exactly a high-yield stock. But with continuous dividend hikes, investors of NEE stock will likely collect much higher yield-on-cost in the future than what today’s numbers suggest.