NextEra Energy Inc: Alternative Energy Stock Delivering Big Returns

A Soaring Stock From an Unlikely Industry

For the most part, utility companies are known for being dividend investments. And due to the slow-changing nature of their business, some might even call them a bit boring. But not all utility stocks are the same. NextEra Energy Inc (NYSE:NEE), for instance, has been delivering some very exciting returns to its shareholders.

Headquartered in Juno Beach, Florida, NextEra Energy owns two electric utility companies in the Sunshine State: Florida Power & Light Company and Gulf Power Company. (Source: “February/March 2020 Investor Presentation,” NextEra Energy Inc, last accessed March 2, 2020.)

Florida Power & Light Company is one of the largest rate-regulated electric utilities in the U.S., serving more than five million customer accounts in Florida. Gulf Power Company, which NextEra acquired in January 2019, serves more than 470,000 customers in northwest Florida.

What makes NextEra Energy stand out is its 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. (Source: “NextEra Energy Board Declares Quarterly Dividend and Continues Above-Average Targeted Growth Rate in Dividends Per Share Through at Least 2022,” NextEra Energy Inc, February 14, 2020.)

The company also owns NextEra Energy Resources, LLC, which, combined with its affiliated entities, is the largest generator of renewable energy from wind and solar in the world.

In other words, what we are seeing here is a behemoth in the alternative energy industry.

And as I mentioned earlier, investors are laughing all the way to the bank. In just the last 12 months, NextEra Energy stock surged 36%. Over the past five years, NEE stock is up a whopping 159%.

NextEra Energy Inc (NYSE:NEE) Stock Chart

Chart courtesy of StockCharts.com

One of the reasons investors like the company so much is the consistent growth in its business. Electric utilities can run pretty reliable businesses, but at NextEra Energy Inc, business has actually kept getting better year after year. From 2004 to 2019, the company’s adjusted earnings per share increased at a compound annual growth rate (CAGR) of 8.4%. (Source: Ibid.)

Notably, even during the Great Recession of 2007 to 2009—which many consider to be the biggest economic downturn in the U.S. since the Great Depression—this alternative energy company was still growing its profits.

And while NextEra Energy stock was delivering massive capital gains to investors, it did not skimp on dividends.

In fact, as the company grew its bottom line over the years, management decided to pay an increasing dividend to shareholders. From 2004 to 2019, NEE stock’s dividend per share increased at a CAGR of approximately 9.4%. (Source: “Dividend History,” NextEra Energy Inc, last accessed March 2, 2020.)

The latest dividend hike arrived in February, when NEE’s board of directors declared a regular quarterly cash dividend of $1.40 per share, representing a 12% year-over-year increase. (Source: NextEra Energy Inc, February 14, 2020, op. cit.)

At its current share price, NextEra Energy stock offers an annual dividend yield of 2.2%.

I know, given how much NEE stock has gone up in recent years, a two percent annual dividend doesn’t seem like much. But keep in mind that this is a return that shareholders get no matter where the company’s stock price is going.

And in the event the stock market enters a sell-off—which is what’s happening at the time of this writing—a solid dividend policy can give investors peace of mind and a reason to hold on to their shares.

Better yet, NextEra Energy’s board of directors also approved an updated dividend policy for beyond 2020. Basically, the company is projected to further increase the dividend by around 10% per year through at least 2022.

Of course, to keep rewarding shareholders like this, NextEra Energy needs to continue growing its business. The good news is, that’s exactly what this alternative energy company is on track to do.

According to its latest earnings report, NextEra Energy earned adjusted net income of $4.1 billion ($8.37 per share) in full-year 2019.  (Source: “NextEra Energy Reports Fourth-Quarter and Full-Year 2019 Financial Results,” NextEra Energy Inc, January 24, 2020.)

This is compared to adjusted earnings of $3.7 billion ($7.70 per share) that the company generated in 2018. On a per-share basis, NEE achieved year-over-year adjusted earnings growth of 8.7%.

Going forward, management expects the company’s adjusted earnings per share to grow at a CAGR of six to eight percent through 2022.

In a press release, NEE’s chairman and chief executive officer Jim Robo said the following:

I believe we continue to offer a best-in-class total return potential, with above-average dividend growth and clear visibility to deliver financial results at or near the top end of our adjusted earnings per share expectations ranges in 2020, 2021 and 2022, while at the same time maintaining our strong credit ratings.

(Source: NextEra Energy Inc, February 14, 2020, op. cit.)

Analyst Take

In the investing world, past performance is no guarantee of future results. But in the case of the alternative energy stock NextEra Energy Inc, further returns could be on the way.