I've had my eye on utility NextEra Energy (NYSE:NEE) for quite some time, but I never got around to adding it to my portfolio. That changed this week, as I finally bought shares of the clean-energy giant. Here are the three main reasons.

1. It's betting big on clean energy

NextEra Energy is already the world leader in generating electricity from the wind and sun after investing tens of billions of dollars over the years to build new renewable power-generating capacity. However, the company isn't stopping while it's ahead. Instead, it's continuing to bet big on clean energy by investing $40 billion through 2020 to build new solar, wind, and storage capacity, as well as more natural gas pipelines.

A field of solar panels with wind turbines in the background at dawn.

Image source: Getty Images.

The reason NextEra is making these investments isn't just because it wants to be a good corporate citizen and help in the battle against climate change. Instead, the main reason it's betting big on clean energy is that these investments earn it the best returns. That's evident in its outsize earnings growth rate over the past several years.

CEO James Robo pointed this out on the fourth-quarter earnings call saying that "dating back to 2005, we've now delivered compound annual growth in adjusted EPS of over 8.5%, which is the highest among all top 10 power companies, who have achieved on average compound annual growth of roughly 3% over the same period." The company expects that high-powered growth to continue in the coming years, forecasting a 6% to 8% compound annual organic earnings growth rate through 2021. However, Robo stated that he "will be disappointed if we are not able to deliver financial results at or near the top end" of that range.

2. It pays an above-average dividend

Another thing I like about NextEra Energy is that it pays a solid dividend. The company currently yields about 2.5%, which is above the roughly 2% average of companies in the S&P 500. Not only is that payout attractive, but it's also on a firm foundation since NextEra pays out only about 58% of its adjusted earnings in dividends, which is a conservative level for a utility since most peers pay out 65%.

However, what's even more attractive than NextEra's current yield is its growth potential. The utility, which has increased its payout at a 9.2% compound annual growth rate since 2005, expects to continue growing it at a high level in the future, targeting 12% to 14% yearly growth through at least 2020.

3. It has the power to continue outperforming

NextEra Energy's clean energy-focused investments have enabled it to consistently increase its earnings and dividends over the years. That growth has helped the company generate total returns that beat not only its utility peers but also the S&P 500. Robo pointed this out on the fourth-quarter call:

We delivered a total shareholder return of over 14% in 2018, outperforming the S&P 500 by nearly 19% and the S&P 500 Utilities Index by more than 10%. Since 2005, we have outperformed 86% of the S&P 500 and 100% of the other companies in the S&P 500 Utilities Index, while continuing to outperform both indices in terms of total shareholder return on a one-, three-, five-, seven-, and 10-year basis.

While that past performance is no guarantee of success in the future, the company has all the ingredients necessary to continue outperforming the market from here. One key factor driving that belief is the company's plans to keep increasing its dividend over the next few years. That's worth highlighting, since dividend growth stocks have historically outperformed the market:



Dividend growers and initiators


Dividend payers


S&P 500 average annual return


No change in dividend policy


Non-dividend payers


Dividend cutters and eliminators


Data source: Ned Davis Research.

The significant outperformance by stocks that increase their dividend bodes well for NextEra's chances of continuing to deliver market-beating returns, since it expects to grow both earnings and its shareholder payout at above-average rates over the next few years. 

Check out the latest NextEra Energy earnings call transcript.

A formula for success

NextEra Energy has made a name for itself by investing heavily to become a leader in clean energy. In doing so, the company has generated above-average earnings growth, which has allowed it to continue growing its dividend. That's been a very successful formula for the company over the years, as it has consistently generated market-beating total returns. That trend appears likely to continue in the future, since the company plans on sticking with its successful formula, which is why I recently added this clean-energy leader to my portfolio.