Shares of giant U.S. utility NextEra (NYSE:NEE) 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.
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.
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.
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.