The world is rapidly transitioning energy sources, moving away from carbon-emitting fossil fuels to cleaner alternatives. Over the next 30 years, the U.S. economy will need to invest an estimated $4 trillion to decarbonize. That represents an unprecedented commercial opportunity for companies focused on developing the renewable energy and storage capacity required to decarbonize the economy.
NextEra Energy (NEE -0.35%) is helping lead the country's decarbonization. It's already one of the country's leading producers of solar and wind energy and battery storage. The utility expects to continue leading the way in the future, which is why I recently bought more shares. Here's why I can't get enough of this leading renewable energy company.
A real plan to reduce emissions
NextEra Energy recently unveiled its bold "Real Zero" goal to eliminate carbon emissions from its operations by 2045. That plan would see its Florida-based electric utility:
- Deploy hundreds of millions of solar panels.
- Add more than 50,000 megawatts (MW) of battery storage capacity, up from 500 MW today.
- Continue running its nuclear energy plants.
- Replace natural gas at its existing power plants with renewable natural gas and green hydrogen.
These investments would enable the company to generate 100% clean power. This plan will also improve reliability and reduce costs for customers while generating attractive returns for shareholders.
In addition, NextEra's energy resources segment aims to drive the decarbonization of the U.S. economy. The company intends to deploy significantly more wind, solar, and battery storage capacity to support other utilities transitioning to zero carbon emissions. The company also expects to develop more electricity transmission lines to support the development of additional renewable energy in the country. It's also looking to build a national water utility, which could further its green hydrogen ambitions, given that water is the key input for that emissions-free fuel. The company expects these investments will generate strong returns for investors.
Decades of growth ahead
In the near term, NextEra Energy expects to invest $85 billion to $95 billion on additional clean energy infrastructure investments through 2025. That should support roughly 10% annual earnings-per-share growth through 2025 at the high end of its guidance range. The company sees cash flow growing at or above that rate. This forecast leads NextEra Energy to believe it can continue growing its dividend at a roughly 10% annual rate through at least 2024.
This forecast represents an acceleration of the company's growth rate over the last 15 years. NextEra has grown its adjusted earnings per share at an 8.4% annual rate while increasing the dividend by about 9.8% per year. Those dual growth drivers have helped power a nearly 1,000% total return during that timeframe, almost three times the return of the S&P 500. With it growing even faster in the future, the company should be able to continue producing prodigious total returns.
Meanwhile, the company has decades of growth ahead as it pursues its Real Zero strategy. That should enable it to continue expanding its earnings and dividend at healthy rates for years to come.
NextEra Energy could supercharge its growth by continuing to make acquisitions. It has a long history of making accretive deals, most recently buying Gulf Power to expand its Florida utility. The company has been looking at utility deals outside of Florida as it seeks to expand its winning model to other states.
The only thing that could slow NextEra is its ability to access the capital it needs to expand. That's currently not an issue because the company has A-rated credit and a conservative dividend payout ratio, which gives it lots of financial flexibility. The company also has a strategic relationship with NextEra Energy Partners (NEP -1.53%), which steadily acquires operating clean energy infrastructure assets from its parent, allowing it to recycle capital into new developments.
A powerful growth story
NextEra Energy is capitalizing on one of the biggest investing megatrends of our lifetime. It's leading the decarbonization charge, which should power above-average growth for years to come. That should enable the company to continue producing strong total returns, which is why I keep buying more shares.