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Why NextEra Energy Is a Retiree's Dream Stock

By John Bromels - May 7, 2020 at 7:35AM

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The utility company and renewable energy giant is built to last.

Retirees need investments that are built to last. After all, a retirement portfolio may need to keep generating steady, reliable income for 30 years or more. 

That's why energy giant NextEra Energy (NEE 0.53%) is a dream stock for a retiree's portfolio. Buying NextEra is almost like buying two companies in one: it's both a regulated electric utility and a developer of wind and solar energy farms. 

Here's why that makes it an excellent choice for retirees.

A man's hand holds a lit Edison-style light bulb in front of a grassy background.

Image source: Getty Images.

Bigger is better

When it comes to reliability, large companies tend to be more stable than smaller companies. NextEra isn't just big -- it's massive. It's one of the 10 largest publicly traded energy companies in the world, and the only company on that list that isn't an oil and gas company. 

NextEra's electrical utility arm is the biggest utility in the U.S., controlling the massive Florida Power and Light, which holds 5 million customer accounts in the Sunshine State. In 2019, NextEra bought Gulf Power from Southern Company, giving it an additional 450,000 accounts in the Florida panhandle. For Florida retirees served by NextEra, it's probably going to be a lot more palatable to send your electric company a check every month, knowing you're getting back a small part of that. 

The other part of NextEra is its massive North American power generation network, which includes wind and solar assets that stretch from coast to coast. About 54% of NextEra's 46 gigawatts of total electricity generation goes directly to Florida Power and Light. NextEra sells the rest to other utilities across the country. To put that amount in perspective, 46 gigawatts could power every home in the State of California. 

In 2019, the company generated (no pun intended) $16.7 billion in revenue. This is a company that isn't going anywhere, and that's good for retirees.

Quality matters

Of course, it's not just size that matters: a company needs to generate a reliable stream of income for its investors.

NextEra's operations churn out reliable streams of cash -- $5.5 billion from its utility operations and another $3.1 billion from power generation in 2019 -- which the company uses to fund new infrastructure projects like wind and solar farms. It also funds its dividend, which it has increased every year for the last 25 years.

That cash flow is very secure. NextEra's millions of customers in Florida aren't going to shut off their air conditioning en masse, and NextEra's largest external renewable power customer only represents 9% of its generation capacity, which means it's unlikely to experience major headaches if a customer departs. 

Meanwhile, NextEra itself has an investment-grade credit rating, and it boasts that most of the utilities buying its power do as well. 

Growing even bigger

Despite already being the biggest, NextEra has no plans to stop growing either its footprint or its dividend.

NextEra reported first-quarter earnings on April 22, and despite concerns that the coronavirus pandemic might affect its outlook, management reiterated its strong growth plans, even saying it would be "disappointed" if it didn't deliver financial results at the high end of its earnings guidance range this year, next year, and in 2022. 

The company has a backlog of 8 gigawatts of renewable energy projects, and it expects to grow that backlog by at least 43.8% by 2022. Management is projecting earnings per share will increase at a compounded annual growth rate (CAGR) of 6% to 8% through 2022. Even better for retirees, NextEra is predicting dividend growth of 10% per year through 2022. 

It all adds up

NextEra Energy has a reliable business model and is pursuing smart, sustainable growth. It's committed to investing in its infrastructure and rewarding shareholders with a growing dividend. Even better, it's investing heavily in renewable energy, which will help reduce emissions and keep its investors physically and financially healthy.

This is exactly the kind of tried-and-true stock seniors should have in their portfolio, making NextEra a true "dream stock" for retirees.

John Bromels 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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Stocks Mentioned

NextEra Energy, Inc. Stock Quote
NextEra Energy, Inc.
$89.90 (0.53%) $0.47
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