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

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

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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.

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