NextEra Energy (NYSE: NEE) has been a powerful income producer over the years. The utility has more than a quarter century of dividend increases under its belt. These haven’t been token raises to keep its streak alive. NextEra has grown its payout at an 11% compound annual rate over the last 10 years. That’s impressive, considering it operates in the slower-growing utility sector.
The company recently delivered its latest dividend increase, boosting the payout by 10%. It expects to maintain that rate for at least the next couple of years. That makes it a great stock for those seeking a rapidly rising income stream.
The Company’s Energized Growth Trajectory
NextEra Energy recently updated its dividend policy. The utility set its prior plan in 2022, targeting to increase its dividend by around 10% per year off that year’s base through at least 2024. With this year’s 10% raise, the company has delivered on its original plan.
Extending that outlook through 2026, the company maintains its target of roughly 10% annual dividend growth off this year’s base. A crucial driver is its expected earnings growth. According to the company, it anticipates growing its adjusted earnings per share near the top of its 6% to 8% annual target range through 2026, culminating in a total growth rate of around 9.4% annually since 2021.
Image source: NextEra Energy.
The company’s robust financial profile, underscored by a “59% payout ratio at the end of 2023, below the peer average of approximately 65%,” provides it with ample room to increase its payment. NextEra also boasts a strong balance sheet, affording it additional financial flexibility to fund its growth while increasing the dividend.
An Endless Supply of Power
While NextEra Energy’s current dividend growth outlook only goes through 2026, the utility will likely be able to continue increasing its payout at a healthy rate beyond that year. A big driver is the growth that still lies ahead. The company estimates that the U.S. economy will need to add 250 gigawatts (GW) of renewable energy and storage capacity in the 2027 to 2030 timeframe. That’s 43% more than the company expects the country to add between 2023 and 2026. Meanwhile, the longer-term opportunity is even larger. NextEra Energy estimates that the U.S. economy will need to invest $4 trillion to build 7,000 GWs of renewable energy and storage capacity by 2050 to fully decarbonize.
NextEra Energy’s leading position in the field, alongside its strong financial position and cost of capital advantage, places it in a prime position to capture future growth opportunities by developing projects at lower costs and higher returns.
In addition to this, the company is making strides in adjacent sectors to add new growth platforms, such as investments in green hydrogen and building new electricity transmission lines to transmit renewable energy to the grid.
A Premier Long-Term Dividend Growth Stock
NextEra Energy has been a magnificent dividend stock over the years by growing its payout at a high rate. That should continue in the future. Given its attractive yield (currently 3.3%), NextEra’s growing earnings and payout could give it the fuel to produce strong total returns. Those features make it a great dividend stock to buy and hold for the decades to come.
Where to invest $1,000 right now
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has nearly tripled the market.*
They just revealed what they believe are the 10 best stocks for investors to buy right now…
See the 10 stocks
*Stock Advisor returns as of February 12, 2024
Matt DiLallo has positions in NextEra Energy. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
