NextEra Energy (NYSE:NEE) delivered excellent results in 2020 despite some headwinds from the COVID-19 pandemic. Overall, the electric utility grew its adjusted earnings per share by 10.5%, which was above the high end of its guidance range. That gave it the power to generate a total shareholder return of around 30%, significantly outperforming the S&P 500. The company expects earnings to continue to increase at a fast pace this year, powered by its industry-leading backlog of renewable energy projects. 

Digging into NextEra Energy's fourth-quarter results

Metric

Q4 2020

Q4 2019

Year-Over-Year Change

Adjusted earnings

$785 million

$706 million

11.2%

Adjusted earnings per share

$0.40

$0.36

11.1%

Data source: NextEra Energy.

NextEra grew its earnings at a double-digit clip during the fourth quarter, powered in large part by the strong results of its electric utilities in Florida:

NextEra's earnings by segment in the fourth-quarter of 2020 and 2019.

Data source: NextEra Energy. Chart by the author.

Florida Power & Light (FPL) grew its earnings by 25.5% year over year during the fourth quarter, pushing its full-year tally up 13.5% above 2019's level. The main driver was new investments the company made to expand its operations in the state. Overall, it spent $6.7 billion on capital projects last year, including installing 1.1 gigawatts (GW) of solar panels as part of its ambitious "30 by 30" plan to install roughly 10 GW of solar capacity (30 million solar panels) in the state by 2030, one of the largest solar expansions in the world. 

Gulf Power also continued to shine as its earnings more than doubled year over year in the fourth quarter while rising 19% overall. One of the big drivers has been its ability to reduce costs by integrating the utility into its operations after acquiring it in 2019. The utility also completed a coal-to-natural-gas power plant conversion in the fourth quarter that will reduce its costs and cut its carbon emissions. As a result of that conversion and the closure of another coal power plant late last year, NextEra's two utilities won't generate any power from coal in 2021 -- the first time FPL and Gulf Power won't have used coal in 70 years.

Finally, earnings at NextEra's energy resources segment rose nearly 5% during the fourth quarter and more than 15% for the full year. Powering that growth was the contribution of new renewable energy assets and improved performance at existing facilities.

A solar farm with a bright sun in the background.

Image source: Getty Images.

A look at what's ahead at NextEra Energy

NextEra expects to generate between $2.40 and $2.54 per share of adjusted earnings this year. That forecast implies 7% growth from 2020 at the midpoint. Meanwhile, the company expects its earnings to grow at a 6% to 8% annual pace through at least 2023. The company stated that it would be disappointed if it didn't deliver results at or near the top end of this range through 2023. Given this forecast, NextEra continues to expect that it can hike its dividend at a 10% annual rate through at least 2022.

One of the main power sources driving this growth is its extensive backlog of renewable energy projects. The company added about 7 GW of renewable projects to its backlog last year, including roughly 2 GW over the past few months. After subtracting the 5.75 GW completed in 2020, it now has 13.5 GW of projects in its backlog.

NextEra believes that it can continue securing additional renewable energy projects. It currently estimates that it will build 23 to 30 GW of capacity between 2021 and 2024. If the company achieves the midpoint of that forecast, it will add one-and-a-half times the size of its existing renewable energy operating portfolio at the end of last year. That significant expansion potential fuels NextEra's view that it can continue growing its earnings and dividend at above-average rates for the next several years.

This utility stock has a bright future

NextEra Energy is leading the energy transition toward a cleaner future. The company has a massive backlog of renewable energy projects that should power fast-paced earnings growth over the next few years. That should give the utility the power to continue outperforming the market, making it a great stock to buy and hold as the global economy shifts power sources.

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