Utilities have long been a haven for retirees because they pay attractive dividends with less risk. In exchange for this safety, retirement-focused investors have traditionally needed to give up some upside since these companies don't grow very fast.
One utility, however, has stood out from the pack: NextEra Energy (NEE 0.54%). The company has significantly outperformed its peers (and most other stocks for that matter) over the last decade and a half. With plenty of power to continue producing above-average returns, it's a stock that retirement-focused investors can't afford to miss.
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Another exceptional year
NextEra Energy recently put the wraps on 2019 by reporting its fourth-quarter and full-year results.
CEO Jim Robo discussed the company's performance on the fourth-quarter conference call: "NextEra Energy's performance was strong both financially and operationally, and we had outstanding execution on our initiatives to continue to drive future growth across the company. By successfully executing on our plans, NextEra Energy extended its long track record of delivering value for shareholders with adjusted earnings per share of $8.37, up 8.7% from 2018."
That growth was above the high end of the company's guidance range, which projected an earnings increase between 6% and 8% last year.
That strong showing was nothing new since the company has generated excellent results for the last several years. Robo noted that "over the past 15 years, we've now delivered compound annual growth in adjusted EPS of nearly 8.5%, which is the highest among all top 10 power companies who have achieved on average compound annual growth of less than 4% over the same period."
He further pointed out that the company delivered this above-average growth while maintaining one of the strongest balance sheets in the sector.
By growing at a fast pace while maintaining a top-notch financial profile, NextEra has created significant value for investors. Robo stated: "In 2019, we delivered a total shareholder return of approximately 43%, significantly outperforming both the S&P 500 and the S&P 500 Utilities Index, and continuing to outperform both indices in terms of total shareholder return on a one-, three-, five-, seven-, and 10-year basis. Over the past 15 years, we have outperformed all of the other companies in the S&P Utilities Index and 85% of the companies in the S&P 500 while more than tripling the total shareholder return of both indices."
To put that impressive outperformance into perspective, here's how much a $10,000 investment in NextEra 15 years ago would be worth today (including dividends) compared with a similar investment in the S&P 500.
NEE Total Return Price data by YCharts.
There's more where that came from
That past performance is no guarantee of future success. One thing Robo made clear on the call, however, is that "although we are proud of our long-term track record of creating shareholder value, we remain utterly focused on the future and committed to continuing that track record going forward." The company aims to deliver on that bold goal by sticking with its current strategy of growing its regulated utilities in Florida while expanding its clean energy operations elsewhere.
In Florida, for example, the company is working on a groundbreaking plan to install 10,000 megawatts of new solar in the coming years, which is the largest solar expansion in the world. It's also investing in low-cost battery solutions to further reduce its costs and carbon emissions. Another initiative is to cut expenses and improve the operations of Gulf Power, which it bought last year.
Meanwhile, its energy resources segment added another 5,800 MW of new wind, solar, and energy storage projects to its backlog last year. Because of that, the company is on track to nearly double its world-leading renewable energy business in the coming years.
Those factors lead the company to believe it can grow its earnings by 6% to 8% per year through 2022, with an additional boost from the cost-saving programs at Gulf Power. That steady earnings growth should enable NextEra to continue increasing its 1.9%-yielding dividend. While the yield is lower than other utilities, the company's growth potential more than makes up for it.
A utility for the long haul
NextEra has a long history of producing above-average total returns for its investors. The company appears like it should be able to keep that up in the coming years as it continues investing billions of dollars into building one of the largest renewable energy producers in the world. That upside from such a low-risk company makes this utility a stock that retirement-focused investors won't want to overlook.
