NextEra Energy (NEE 0.51%) is an outlier in the energy sector. The utility is growing fast, which is allowing it to generate superior total returns. That was evident again during the first quarter.
That high-powered growth should continue. Because of that, the company should be able to continue increasing its dividend, which yields an above-average 2.4%. Here's a look at the quarter and what's fueling its robust growth.
Off to a strong start
NextEra Energy generated nearly $1.7 billion, or $0.84 per share, of adjusted earnings in the first quarter. That was 13.5% above the year-ago period, a blistering increase for a utility. The company delivered strong results from its regulated utility in Florida (FPL) and its unregulated energy-resources segment.
FPL generated roughly $1.1 billion, or $0.53 per share, of net income, up 20.5% year over year. That's a robust increase for what is already the country's largest electric utility. The company benefits from continued investments in its business and customer growth as more people move to Florida.
FPL added 970 megawatts (MW) of new solar energy capacity in the quarter, bringing its portfolio to an industry-leading 4.6 gigawatts (GW).
Meanwhile, NextEra's energy resources segment generated $732 million, or $0.36 per share, of adjusted net income. That was 12.5% above the year-ago quarter. New investments to build out additional renewable energy capacity helped power the quarter.
The energy to continue growing
NextEra's strong start to 2023 enabled the company to affirm its long-term financial expectations:
Image source: NextEra Energy.
As this slide shows, the company expects its adjusted earnings per share to expand by 3% to 8% this year. And it sees 6% to 8% annual earnings growth over the longer term. That's faster than its large utility peers, and it should create a dividend increase of about 10% through at least next year.
The growth projects secured by the company's energy resources segment are a big factor powering that forecast. NextEra Energy added over 2 GW of new renewables and energy-storage capacity to its backlog since its last earnings report in January. That brought its total backlog to 20.4 GW. To put that into perspective, the energy resources segment ended last year with 30 GW of operating capacity.
In addition to building new wind, solar, and battery storage capacity, NextEra is also investing in other low-carbon energy projects. The company recently closed a $1.1 billion acquisition of a large portfolio of landfill-gas-to-electric facilities. The deal will expand its renewable natural gas operations while enhancing its capabilities to capitalize on the briskly growing renewable fuels market.
The company also formed a joint venture with CF Industries to deliver green hydrogen to an existing ammonia production plant. NextEra would provide 450 MW of renewable energy to power the hydrogen facility, which can produce 40 tons of hydrogen per day. It has a pipeline of more than $20 billion in potential hydrogen projects requiring over 15 GW of new renewables.
NextEra Energy is also pursuing electricity transmission projects to support renewable energy development. The company is working to win approval for about $400 million of transmission and substation upgrades in California. It estimates this project could empower up to 11 GW of new renewable generation in the state.
Plugged into a powerful trend
NextEra Energy was early in investing in renewable energy, and that strategy is paying big dividends. It can leverage its large scale to deliver lower costs and higher-return investments that lead to strong growth.
The company has the wind at its back and should generate above-average earnings and dividend growth over the next several years. That makes it a compelling opportunity for investors seeking a way to play the renewable energy megatrend.
