Please ensure Javascript is enabled for purposes of website accessibility

Why NextEra Fell 4% While the Market Was Rallying in April

By Reuben Gregg Brewer - May 6, 2020 at 11:09AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

NextEra, a relatively fast-growing utility, lagged badly behind the market in April, but don't get too stuck on one month's performance.

What happened

Shares of giant U.S. utility NextEra (NEE 0.97%) fell 4% in April according to data from S&P Global Market Intelligence. That's somewhat surprising given that the average utility, using Vanguard Utilities ETF as a proxy, was up 3%. The S&P 500 index, meanwhile, advanced an even more impressive 13%. Don't get too crazy trying to figure this one out; it's pretty simple.

So what

NextEra operates two main businesses: regulated utilities in Florida and a large renewable power operation. Florida is a pretty good market in that its population is expanding. That means more customers and, with the utility on good terms with its regulators, a growing top line. The renewable power business, meanwhile, is one of the largest such operations in the world and sells power under long-term contracts to others. It's in a sweet spot today, as clean power is in high demand. NextEra also benefits from modest leverage and a low dividend payout ratio. Overall, it has been able to increase its dividend at a more rapid clip than most of its peers in a market sector that is specifically looked to for dividends. 

A worker standing in front of electrical power equipment

Image source: Getty Images

These facts have not been lost on investors, who have long afforded NextEra a premium price. In fact, in the first four months of 2020, NextEra was still down 4.5%, but that's better than the 10% drop in the S&P 500 and the 12% decline for the average utility. The numbers are even more dramatic if you look back 12 months. Over that span NextEra is up 21%, the S&P is up just 2%, and the average utility is down 2%. The fact that NextEra lagged a little while the broader market and its peers rebounded from a tough March shouldn't be too shocking. Note that NextEra's stock fell roughly 5% in March while the S&P was down 13% and the average utility was off by 11% as investors fretted about the impact of COVID-19.  

Now what

The story at NextEra is the same as it has been for a very long time. It is a well-run utility that is growing at a rapid clip relative to its peers. Moreover, it has a long history of rewarding investors with impressive dividend increases. April's stock price performance doesn't change that and, when looked at over a longer period of time, is just a drop in the bucket. Frankly, lagging a bit makes sense given the stock's strong relative performance in March. Investors shouldn't worry too much about April's disappointing showing. 

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends NextEra Energy. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

NextEra Energy, Inc. Stock Quote
NextEra Energy, Inc.
NEE
$89.78 (0.97%) $0.86

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
373%
 
S&P 500 Returns
122%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/10/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.