NextEra Energy (NYSE: NEE) stands as a mammoth in the U.S utility sector, boasting a remarkable dividend track record with consistent annual increases over nearly three decades. Despite its traditional image as a dividend-paying utility, NextEra Energy bucks the trend with an impressive 10% dividend growth average over the past ten years, sparking interest for growth and income investors. Here are two pivotal reasons why the time is ripe for consideration of this energy titan.
Unlocking the Appeal of NextEra Energy Stock
The primary lure of NextEra Energy lies in its current dividend yield of 3.2%. While this figure might seem modest to income-focused investors, it pales in comparison to the 3.6% average offered by utilities, as exemplified by the Vanguard Utility ETF (NYSEMKT: VPU). However, the critical takeaway here is that NextEra’s 3.2% dividend yield is a historical high over the past decade, signaling an attractive buying opportunity. Marking the utility sector’s downfall is its aversion in the face of escalating interest rates. The industry’s capital-intensive nature heavily relies on debt for financing, making higher rates a formidable cost headwind. As a result, most utilities are more affordable than they have been in a prolonged time. Notwithstanding, given NextEra Energy’s rapid dividend growth and management’s forecast of continued growth into 2024, this historically high yield is particularly alluring.
NextEra Energy’s Trailblazing Strategy Remains Staunch
What sets NextEra Energy apart from its competitors is its nuanced approach. Although it is a major player in the U.S utility domain, chiefly operating in Florida through Florida Power & Light, it is also the global leader in solar and wind power generation. Approximately 70% of its business constitutes its regulated utility assets, the “core,” while the rest is predominantly the renewable power business or the “explore” side. This fusion of core and explore underpins the robust dividend and earnings growth that NextEra Energy bestows upon its investors.
The company’s management anticipates not only a continued upward trajectory in dividends in 2024 but also a sanguine outlook for annual earnings growth, expected to range between 6% and 8% until at least 2026. This expansion will be propelled by the steady growth in the core business, fueled by Florida’s long-standing influx. Furthermore, the heightened demand for clean energy, a sector currently shunned by Wall Street, promises lofty growth prospects as the world traverses the transition away from carbon fuels. This protracted transformation is likely to span decades, providing NextEra Energy with ample scope for growth.
Seize the Moment with NextEra Energy Stock
While NextEra Energy may not be a perfect fit for every investor, those seeking to maximize their income generation may fare better elsewhere. However, for investors who value growth or prefer growth and income stocks, NextEra Energy’s undervalued stance and robust fundamentals offer an enticing proposition. Such a combination is too auspicious to overlook, for this buying window may not linger indefinitely.
Before diving into NextEra Energy stock, consider this:
The Motley Fool Stock Advisor research team has pinpointed what they reckon are the 10 best stocks for investors to invest in right now—and NextEra Energy didn’t make the cut. The 10 chosen stocks hold the potential to yield substantial returns in the upcoming years.
Stock Advisor equips investors with a clear-cut roadmap to success, featuring guidance on portfolio construction, regular updates from analysts, and two fresh stock picks each month. Since 2002, the Stock Advisor service has surpassed the returns of the S&P 500 by over threefold*.
Explore the 10 stocks
*Stock Advisor returns as of February 12, 2024
Reuben Brewer holds no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends NextEra Energy. The Motley Fool maintains a disclosure policy.
The perspectives and opinions expressed are solely those of the author and do not necessarily represent the views of Nasdaq, Inc.
