MetLife Stadium, home to the New York Giants and Jets, as well as 1,350 NRG Energy solar panels. Source: NRG Energy,
The S&P 500 has been on a historic run, but it's dividend stocks that have taken the cash cake. With positive growth for 8 of the last 10 quarters, investors are hunting for dividend dynamite. And NRG Energy (NRG -0.07%) might just be the boom they've been looking for. Here are three reasons why NRG Energy, could be 2015's most powerful dividend stock.
1. The steadiest sector around
NRG Energy belongs to one of the most sought-after sectors for income investors: utilities. Utilities offer regulated and predictable earnings with steady cash flow and relatively little risk. Since utilities operate as monopolies (how many power lines do you want hanging by your house?), public commissions keep close tabs on utilities' earnings, capping their return on equity, or ROE. While that means utilities won't be swimming in cash when the Snowpocalypse causes half the country to crank their thermostats, it also means earnings aren't going anywhere at other times. It's that sort of consistency that allows utilities like NRG Energy, to consistently grow and distribute dividends. With a current 2.4% yield, NRG has grown its dividend 61% since 2013, creating a "dividend stairway" to heaven.
NRG Dividend data by YCharts
2. New energy for a new era
Utilities are dividend stalwarts, but even this sector has hit riskier times. Slowing electricity use growth, more efficient energy systems, and decentralized power are all threatening to disrupt utilities' tried and true business model.
Some utilities are hard at work stymieing any disruption attempts by doubling down on old tactics or even playing political games. Not so for NRG Energy. This utility has embraced electricity innovation, and is jumping on board as a first mover on several fronts. The company has diversified its energy sources and currently operates almost 100 generation assets with a total capacity of 53,000 MW. NRG has more than 1,200 MW of solar generating capacity and ownership in 521 MW of wind power. Most importantly, NRG Energy doubled down on its renewable efforts when it spun off NRG Yield, (CWEN 0.26%) in June 2014 to hand off four natural gas or dual-fired facilities, 10 utility-scale solar and wind farms, and two distributed solar portfolios. NRG Yield, serves as a yieldco, a special financial status entity that allows investors to benefit from lower taxes for these steady projects and their power purchase agreements.
3. Expanding beyond electricity
NRG Energy is expanding its power products beyond big energy projects. In March 2014, the utility acquired Roof Diagnostics Solar to create NRG Home Solar. NRG Home Solar offers residential solar installations in nine markets in California and the Northeast, and an October 2014 acquisition of Pure Energies further expanded NRG's online and over-the-phone customer sales opportunities. While it currently lays claim to a relatively small 250 MW worth of installations, it hopes to have 875 MW by 2017 and 2,400 MW by 2022. NRG Energy's "NRG Home" and "Reliant" subsidiaries offer further opportunities for homes and businesses to sign up for customizable plans with renewable and energy efficiency options, and they're using innovative marketing tactics such as offering free cowboy boots with the purchase of a "Reliant Rodeo Plan" to capture new customers.
Source: NRG Energy, Inc .
NRG Energy is even getting into the automotive business. Its "eVgo" electric vehicle charging infrastructure currently spans 10 markets nationwide, with plans to expand to more than 25 in the next two years. Unlike Tesla Motors' (TSLA -1.11%) start-from-scratch model, NRG can capitalize on its already existing 3 million customer base across 47 states to spur demand for this first-of-its kind profit-pulling setup.
Foolish bottom line
NRG Energy may not have the biggest dividend yield around, but its diversified assets, smart business model, and progressive outlook should put this investment on every income investors' radar. Dividend stocks are the simplest way to keep pulling in cash profits year after year, and NRG Energy is well-positioned for 2015 and beyond.
