NextEra Energy (NYSE:NEE) is not a cheap stock, and it really never is, which is why investors with a growth bias shouldn't wait for a market crash to jump aboard. In fact, it's not just growth investors who will love NextEra, but dividend growth types too. Here's what you need to know.
The foundation of NextEra's business is a boring old electric utility. Known as Florida Power & Light, this business, plus some smaller operations in the Sunshine State, serves 11 million customers. It is the largest regulated electric utility in the United States. That means that it has been granted a monopoly in the markets it serves, but, in exchange, it must get its rates approved by the government.
This is actually a pretty good deal for the utility, because it generally means slow and consistent growth over time regardless of what's going on in the stock market. That's driven by capital spending to ensure adequate and reliable power for customers, which regulators view quite favorably. And Florida's population has been growing for years, so NextEra also gets the benefit of operating in a really desirable region.
But nothing here, in and of itself, should excite a growth investor. Utilities are generally slow and steady behemoths that toss off reliable cash flows. Where things start to get exciting is that NextEra is using this core business to help fund the build-out of a giant renewable power operation.
The growth engine
NextEra can currently claim to be the world's largest producer of renewable electricity from solar and wind power. So it has clearly made excellent use of the "core and explore" business model, with the solid utility foundation providing a great base for expansion in the fast-growing renewable power sector. However, it is far from done -- the world is in the middle of a decades-long transition away from carbon fuels.
But some numbers will help. Between 2021 and 2024, NextEra hopes to build as much as 30 gigawatts of renewable power assets. The company currently has around 22 gigawatts of power in its portfolio, so the goal is basically to more than double the size of its renewable power fleet. This is where NextEra's growth is going to come from, and why growth investors should love the name.
All of this investment is expected to result in adjusted earnings-per-share growth of between 6% and 8% a year over at least the next few years. And for those dividend growth investors out there, the spending is also projected to lead to 10% dividend growth in 2022.
But, once again, some background is necessary. NextEra has increased its dividend annually for 27 consecutive years, making it a Dividend Aristocrat. The dividend growth rate over the past decade, meanwhile, has averaged around 10%. So the near-term growth projections here are pretty much the norm for NextEra.
Essentially, this mix of a boring utility and fast-growing renewable power company has long rewarded investors well for sticking around. As noted, the stock is hardly cheap -- its yield is a miserly 1.8%. Indeed, those with a value bias should probably steer clear. However, with a growing business in the growing renewable power sector, all backed by a solid electric utility operation, NextEra looks extremely well positioned for the future.
Sure, a market downturn might sting in the short term, but the long term looks like it will just get better and better. And since you can't predict when the next bear will visit Wall Street, growth investors and dividend growth investors probably shouldn't risk missing out on NextEra, even though it's trading at a premium price today.