Utilities are generally considered boring investments appropriate for conservative investors looking for reliable income streams. That's not the case with NextEra Energy (NEE 0.45%), but in a good way. This is a rare example of a utility that's focused on growth, which should interest dividend growth investors looking to add some diversity to their portfolios. But the big story here is clean energy.
Core and explore
The key to NextEra's success has been its ability to pair the old and the new. Specifically, it owns the largest electric utility in the United States in the form of Florida Power & Light. This is a typical regulated utility that has to get approval from the government for rate increases and capital spending plans before it makes a move. The state of Florida has long benefited from in-migration, making NextEra's position there pretty beneficial. However, regulated electric utilities are still a slow-growth game.
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And yet somehow, NextEra Energy has managed to increase its dividend at a compound annual rate of roughly 10% over the past three-, five-, and 10-year periods. That's an impressive rate for any company, let alone a utility. The trick is that, on top of its regulated operations, NextEra Energy has layered a fast-growing clean energy business.
At this point, NextEra Energy Resources, which isn't particularly descriptive of what this entity does, is the largest producer of solar and wind power on the planet. That's a notable feat, with the division's capacity sitting at roughly 30 gigawatts.
The future is for more growth
At this point in time, NextEra Energy expects to grow earnings between 6% and 8% a year through 2026, with dividends expanding at 10% through at least 2024. To get there it will continue to invest in its regulated Florida business, but the really exciting story is more likely to be found on the clean energy side of things.
For starters, NextEra Energy Resources has signed contracts for 19 gigawatts of capacity. Its existing business is heavily weighted toward utilities, which make up nearly two-thirds of its customers. However, there's a shift taking place that's worth monitoring, as corporate and industrial customers account for roughly 40% of its signed contracts, up from just 18% of the company's existing customer base. Utilities remain very important, but they clearly aren't the only growth platform.
That 19 gigawatts, meanwhile, isn't the company's goal. It expects to build as much as 41.8 gigawatts of new projects, on the high end, between 2023 and 2026. That will more than double the company's clean energy capacity. That massive and rapid growth will support the company's earnings and dividend expansion. What's notable here, however, is that nearly half of that goal already has customers signed up, so NextEra is well on its way to succeeding in its aggressive growth plan. Moreover, management generally gets customers signed up before building, so it is unlikely to speculatively build assets. Thus, even if it falls short of the high-end goal, investors don't need to worry too much about the company taking on undue risk and putting the current dividend at risk.
A lot of growth ahead
According to the company, "Energy Resources' total renewable generation capacity is expected to exceed the total installed capacity for ALL generation types of any company in the U.S. by 2026." That's a pretty big goal and one that will require a lot of growth to achieve, on top of the investments the company is making to its regulated business. Long-term dividend growth investors will likely appreciate that backstory, though the dividend yield is fairly modest at 2.5%. Ultimately, investors are paying up for dividend growth -- but given the history and the outlook for the future, that may be worth it.
