NextEra Energy (NEE -1.39%) has done an exceptional job growing shareholder value over the years. Since 2004, the utility has expanded its adjusted earnings per share by an 8.4% compound annual rate. That has powered even faster dividend growth of 9.4% annually and market-mashing total returns, with it more than doubling the S&P 500's total return over the last decade.

The energy company fully expects those upward trends to continue, which reflects in its recently bolstered guidance. It not only increased its near-term earnings forecast but also extended its projections out another year to 2023. That increasing visibility into what's ahead should enhance its appeal to investors. 

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Increasing the charge

NextEra Energy was already on track to deliver above-average earnings and dividend growth over the next few years. The company had previously set the following expectations:

  • Adjusted earnings-per-share growth of 6% to 8% per year through 2021 based on 2018's baseline level of $7.70 per share.
  • An additional $0.15 per share of earnings in 2020 and $0.20 per share in 2021 from the expected accretion of its Florida acquisitions in 2019, which included the purchase of Gulf Power.
  • 6% to 8% earnings growth in 2022 off 2021's level.
  • Dividend per share growth of 10% annually through at least 2022.

That forecast had it on track to grow its earnings from 2018's starting point of $7.70 per share to between $10.00 to $10.75 per share by 2022, before factoring in its recently approved stock split.

However, thanks to the ongoing strength of the renewable energy development environment, and strong execution across all its business segments, NextEra is increasing its earnings expectations for 2021 and 2022 and extending its outlook to 2023. For next year, it sees earnings coming in $0.20 per share above its prior forecast. Meanwhile, it expects earnings in 2022 and 2023 to expand by 6% to 8% per year off that higher projected base. Though, CEO Jim Robo believes the company can do even better. He commented in the guidance update release that "I will be disappointed if we are not able to deliver financial results at or near the top end of our adjusted earnings per share expectations ranges in 2020, 2021, 2022, and now 2023." 

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Image source: Getty Images.

What's powering this supercharged forecast?

One of the biggest factors driving NextEra's upgraded forecast is its renewable energy development program. Robo stated, "the market for low-cost renewables continues to rapidly expand, and we believe our best-in-class development skills leave us uniquely positioned to capitalize on these significant investment opportunities." The company has been rapidly expanding its backlog of renewable energy development projects in recent years. It added more than 1.7 gigawatts (GW) of new projects during the second quarter, which boosted its backlog to 14.4 GW. To put that into perspective, it's bigger than the currently operating wind and solar portfolios of all but two other companies in the world. Further, it will increase its existing renewable portfolio, -- which already boasts a leading 19 GW of wind and solar assets -- by 75%.

The main factor powering the rapid expansion of the company's renewable energy backlog is the sharp decline in costs. The levelized cost of electricity from wind and solar energy has declined by a 15% compound annual rate over the last decade thanks to technology improvements and the benefit of manufacturing scale. Meanwhile, the company sees those costs continuing to decline over the next few years. In its estimation, by the end of 2024, wind and solar will be the two cheapest forms of electricity, and that assumes current tax credits expire. Similarly, the cost of energy storage is coming down sharply. The company accordingly expects to rapidly expand the country's battery storage capacity over the next few years.

As a result of those falling costs, NextEra anticipates that the renewable energy development market will accelerate in the coming years. It sees the industry going from adding 10 GW apiece of new wind and solar generating capacity in the 2019-2022 timeframe to building 12-15 GW of wind and 18-20 GW of solar per year between 2023 and 2030. That forecast suggests that NextEra should have no problem growing well beyond 2023.

Plenty of power to continue pulverizing the market

NextEra Energy was already on track to generate above-average earnings growth for the next several years, which should have been enough to power market-beating total returns. However, with the tailwind of renewable energy development growing stronger as costs keep falling, it sees its growth accelerating and now has even more visibility into the future. Those factors increase the probability that it can continue generating market-crushing total returns, making it an ideal stock to buy and hold long-term.