How 1 Utility's 2012 Will Shape Its 2013

With 2013 here, now is the perfect time to examine how your portfolio picks played out in 2012. In this year-in-review, we'll examine NextEra Energy's (NYSE: NEE  ) stock, dividend, fundamentals, and any big announcements from 2012. Arm yourself with this top-level analysis, and you'll be well on your way to a truly happy new year.

Stock and dividend
In a rare instance for utilities, NextEra's stock managed to rake in a 19% return for investors. That's 18 percentage points above the Dow Jones Utilities Index and a solid five percentage points above the S&P 500 (SNPINDEX: ^GSPC  ) .

NEE data by YCharts

NextEra's dividend hasn't fared quite as well. Its 3.7% yield dropped to 3.4% by the end of 2013, a solid 0.6 percentage points below the industry average. But NextEra's cash dividend payout ratio paints a rosier picture.

NEE Dividend Yield data by YCharts

Its dividend quails in comparison to competitors', but could be more sustainable despite its current negative cash flow. Companies like Dominion Resources (NYSE: D  ) and First Energy (NYSE: FE  ) suffer from negative cash flow and high payout ratios, calling into question the long-term viability of their dividends. Southern Company (NYSE: SO  ) boasts positive cash flow, but is still doling out 855% of its distributable cash to cover its dividend payments. Exelon (NYSE: EXC  ) , Consolidated Edison (NYSE: ED  ) , and National Grid (NYSE: NGG  ) are all paying out more than they can afford in the long term, but their dividends are more reasonable and all three companies have positive cash flow. Atlantic Power (NYSE: AT  ) and NextEra both suffer from negative cash flow, but their payouts are more in proportion with their dividends than most other companies.

Company

Dividend Yield

Cash Dividend Payout Ratio TTM

Atlantic Power

9.6%

(54%)

Exelon

7.1%

123%

First Energy

5.3%

(1,770%)

Duke Energy

4.7%

(252%)

Southern Company

4.5%

855%

Consolidated Edison

4.3%

163%

Dominion Resources

4.1%

(1,769%)

National Grid

4.0%

163%

NextEra Energy

3.4%

(27%)

Source: YCharts and Yahoo! Finance; TTM = trailing 12 months.

Fundamentals
2012 brought in steady sales and slightly falling income. Net income rose sharply in the two years preceding, but has tapered out as the utility bumped up capital expenditures for maintenance and expansion purposes.

NEE Revenue Annual data by YCharts

While one-time expenses and sales can skew dollar data, margins provide a better look into management efficiency. For 2012, NextEra continued to expand both gross profit operating margins. Compared to utilities' 44.1% average gross profit margin, NextEra's ahead of the bell curve.

EXC Gross Profit Margin Quarterly data by YCharts

The green machine
NextEra has earned its title as the largest renewable energy producer in the United States, but its status comes with unique challenges. NextEra's wind investments just got another boost thanks to Congress' production tax credit extension, but any political maneuvering away from wind could kill its cost-competitiveness. Plus, if Congress goes through with plans to give renewables the same sort of tax breaks as oil companies, NextEra could become an even wealthier windmill.

NextEra's balancing its new wind farms with natural gas expansions, but this carries its own political risks, despite its cheap power production.

Source: NextEra 10-K 

Foolish bottom line
NextEra's 2012 saw steady sales, excellent profit margins, a solid but small dividend, and a continued push into wind and natural gas. If you can bear the politicization of renewables and don't mind the dinky dividend in return for long-term-growth prospects, NextEra could be your pick for 2013.

As the nation moves increasingly toward clean energy, one company in this space that is perfectly positioned to capitalize on having the largest nuclear fleet in North America is Exelon. This strength combined with an increased focus on renewable energy, along with its recent merger with Constellation, puts Exelon and its best-in-class dividend on a short list of top utilities. To determine if Exelon is a good long-term fit for your portfolio, you're invited to check out The Motley Fool's premium research report on the company. Simply click here now for instant access.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2184473, ~/Articles/ArticleHandler.aspx, 12/20/2014 6:50:07 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement