Diversification is important in investing. It spreads risk across multiple entities and can even lead to higher returns. Investing too much capital in one or two stocks can have devastating consequences, as we often don't realize we're traveling through our wealth-building journey with blinders on until it's too late.
That said, if I could buy only one stock for the foreseeable future, it would probably be NextEra Energy (NYSE:NEE). The renewable energy leader doubles as the world's largest publicly traded utility and has absolutely smoked the return of the S&P 500 since the turn of the century. As recent first-quarter 2019 earnings results demonstrate, the business is well-positioned for growth despite -- and, actually, because of -- its mammoth size.
The right mix of past, present, and future
NextEra Energy has grown from a market cap of $10 billion in mid-2001 to a market cap of over $91 billion today by riding major trends in electricity generation. Some are boring but noteworthy, such as a customer-centric focus on service reliability and keeping bills low. Others tend to grab the headlines, such as pouring tens of billions of dollars into renewable energy assets. Both have turned out well for shareholders.
For example, the company's primary electric utility, Florida Power & Light (FPL), has expanded to serve over 5 million customer accounts and contribute 59% of NextEra Energy's adjusted earnings per share last year. It owns over 24,000 megawatts of power generation and $53 billion in total assets, generates over $12 billion in annual revenue, and is the largest utility in the country ranked by megawatt-hours sold. The average FPL customer's bill is 15% below the state average and 29% below the national average. The utility's system experiences 36% less downtime than the state average.
Meanwhile, the company's power generation arm, NextEra Energy Resources (NEER) was among the first to make a big, bold bet on wind power in the early 2000s. That has played a significant role in NextEra Energy's rise in the last two decades, while simultaneously moving wind power from an also-ran in the nation's energy mix to the lowest-cost source of electricity today.
Consider that wind power generated just 190 terawatt-hours of electricity for the United States in 2001 but a whopping 275,000 terawatt-hours in 2018, representing 6.5% of the country's total electric output. NEER owns 15,000 megawatts of wind power today, representing 67% of its power mix and 15% of the country's total installed wind power capacity. That also makes NEER the global leader in electricity generated from the wind. It was responsible for 39% of NextEra Energy's total adjusted EPS in 2018.
While investors shouldn't expect the stock's incredible 1,620% return this century (with dividends included) to be replicated in the next 20 years, NextEra Energy is poised to capitalize on trends the same as or similar to those that have already carried it to dominance.
For instance, the business recently acquired Gulf Power, another, albeit smaller, electric utility in Florida. But customers pay above the state average in monthly bills and are prone to service disruptions twice as long as FPL customers endure on average. NextEra Energy sees an opportunity to improve both stats while adding (together with a recently acquired natural gas utility) annual earnings per share of $0.15 and $0.20 in 2020 and 2021, respectively.
FPL is poised to continue lowering customers' bills and growing profits. The utility is currently embarked on the nation's largest solar power program, pledging to put 30 million panels into service by 2030. It's already secured sites capable of supporting 7,000 megawatts of capacity, or roughly 70% of the 2030 goal. Since solar power doesn't require fuel, it should save the utility -- and customers -- millions of dollars compared to natural gas power plants, which currently supply 73% of its electricity.
NEER isn't resting on its laurels, either. The power generator, currently the fourth-largest capital investor in the United States, could add up to 28,500 megawatts in wind and solar projects to its national pipeline in the next few years. While some of the assets will be sold to regional players, for perspective, it's worth mentioning that NEER's current power generation portfolio comprises 17,400 megawatts of wind and solar assets.
Poised for long-term growth
NextEra Energy has grown into a $91 billion behemoth by taking risks, such as investing in wind power when few others saw the potential and turning FPL into one of the country's best-performing electric utilities by putting the customer first. Now that it's the largest publicly traded utility in the world by market cap, it has an enviable amount of financial flexibility to throw at growth and delivering value for shareholders. Given all that, there's little reason to think the business won't achieve its goal of growing adjusted EPS 6% to 8% per year through 2021, which makes it a solid holding for any portfolio. Just don't make it your only one.