The U.S. economy is likely headed toward a recession that would have seemed impossible just two months ago. No one can be sure how long it will last or how quickly it can be recovered from, but plenty of economic pain is on the horizon.
While it's probably safe to assume the worst is yet to come, individuals with a long-term mindset shouldn't obsess over attempting to time the market bottom. You'll likely fail and, in a wealth-building journey measured in decades, it won't matter all that much.
If you're looking to start investing in 2020, then consider buying dividend stocks such as NextEra Energy (NEE) and Essential Utilities (WTRG). They won't be completely spared by the coronavirus pandemic, but they can anchor any portfolio for the long haul.
Will this be a banner year for renewable energy?
The U.S. Energy Information Administration (EIA) expects total electricity demand in the United States to decline by 3% in 2020 compared to last year. That's the most significant year-over-year decline since 2009, when the country was mired in the throes of the Great Recession. What's more, all three end markets -- residential, commercial, and industrial -- are expected to use less electricity in 2020. That suggests NextEra Energy will face significant headwinds this year, although there are reasons to expect the business to be better positioned than peers.
The company's primary electric utility, Florida Power & Light (FPL), leaned on residential customers and commercial customers for 55% and 35%, respectively, of its full-year 2019 operating revenue. While commercial customers are most likely to suffer from stay-at-home orders issued by states across the United States, the state of Florida has operated with a relatively lax definition of "essential business" during the health crisis. If those decisions don't prolong the state's epidemic, then FPL might make it through the spring with relatively little damage.
More important, NextEra Energy can offset weakness in its electric utility by leaning on its power generation subsidiary, NextEra Energy Resources (NEER). The power generator owns and operates power assets across the United States, which could help to distribute risks from nationwide declines in electricity consumption. The subsidiary's generation mix will be of particular interest to investors.
NEER owns 16,000 megawatts of onshore wind power and another 3,000 megawatts of utility-scale solar power. The renewable duo comprised 76% of the company's generation mix at the end of 2019. That could prove to be a unique advantage during the coronavirus pandemic. Power generators will be less inclined to curtail output from intermittent wind and solar sources compared to that from fossil fuel plants, especially when considering the lower operating costs of renewable assets.
In fact, the EIA expects renewable energy generation to grow 11% in 2020 compared to last year. The only other power source expected to grow output in the year-over-year period is natural gas, with a 1% increase in electricity generation.
To be blunt, investors should expect NextEra Energy to encounter headwinds this year -- and they'll get a glimpse of the impact soon. The renewable energy leader is scheduled to report first-quarter 2020 operating results on April 22. Those with a long-term mindset might not care too much about the near-term impacts, assuming the coronavirus pandemic doesn't impart a protracted effect on domestic electricity demand.
After all, NextEra Energy has delivered a total return of 583% in the last decade, compared to a total return of "only" 193% for the S&P 500 in that span. A healthy 2.4% dividend yield has helped, while the company's leadership position in American renewable energy has provided solid and predictable cash flows. That market-beating trend is likely to continue for the long haul.
Long story short, this renewable energy stock is well positioned to navigate near-term uncertainty and help you to build long-term wealth.
A hybrid water and natural gas utility is poised for growth
When water utility Aqua America acquired natural gas utility Peoples Gas, the company changed its name to Essential Utilities. It also changed the long-term trajectory of the business.
While the water utility expects to grow its regulated rate base -- the value of assets from which rates are determined -- at a compound annual growth rate (CAGR) of 6% to 7% from 2019 to 2022, the natural gas utility expects to deliver 8% to 10% annual growth in that span. Management expects rate base growth to translate to adjusted earnings per share (EPS) growth of 5% to 7% over the next three years.
The highly regulated nature of both water and natural gas utilities means investors can count on relatively steady and predictable growth. There's also an intriguing potential for synergies, as there's considerable geographic overlap between the company's water and gas customers. Could Essential Utilities save costs by scheduling repairs and maintenance for both at the same time, therefore digging up streets only once?
That's a longer-term question that will take time to answer. Of course, similar to NextEra Energy, Essential Utilities is likely to be negatively impacted by the coronavirus pandemic in the near term. But the seasonality of natural gas consumption provides some built-in risk mitigation.
Before the health crisis hit, Essential Utilities expected to generate 65% to 75% of full-year 2020 net income in the first and fourth quarters, when the weather is coldest. The pandemic-induced economic slowdown didn't hit until mid-March, which should largely spare first-quarter operating results. Meanwhile, parts of the country and economy are expected to begin opening by this summer, which could allow the company to keep its fourth-quarter net income projections largely intact.
Whether the health crisis lasts shorter or longer than expected, investors can count this dividend stock as a solid anchor for their portfolios. Essential Utilities pays a healthy 2.2% annual dividend yield and has delivered a 10-year total return of 289%, compared to a total return of 193% for the S&P 500 in that span. That market-beating capability should be true 10 years from now, too.