NextEra Energy (NEE -1.36%) has an enviable dividend record, with a massive commitment to rewarding investors well via a growing disbursement. That's perhaps not all that shocking given that it is a utility, a type of company known for paying reliable dividends.
But there's more to the story when you start to look at the growth rate of the dividend, which could make this stock a great pick for investors who not only care about dividends, but dividend growth as well. Here's a quick look at why NextEra Energy is a no-brainer for dividend growth investors.
1. The dividend streak
It would be silly to talk about a dividend growth stock without a discussion of the payout right up front. NextEra Energy has increased its dividend annually for 29 consecutive years. That's impressive and includes hikes through the Great Recession and the pandemic, among many other difficult social and economic times.
But the growth angle is apparent when you see that, over the past decade, the payout has a compound annual growth rate in excess of 10% -- incredibly fast for a utility.
NEE dividend per share (annual) data by YCharts.
The chart above shows exactly how exceptional that dividend growth really is by comparing it to some of its largest peers. None of them come close to matching the rate achieved by NextEra Energy.
2. The dividend yield
The takeaway from the above chart is that NextEra has an impressive dividend history. But there's a trade-off: The dividend yield tends to be below that of its peers. If you are looking to maximize the income your portfolio generates today to pay for living expenses, you probably won't want to own it.
NEE dividend yield data by YCharts.
However, if you are looking to turn on that income stream in the future, the story could be very different. NextEra Energy's yield is lower today, for sure. But over a decade or more of rapid dividend growth, it could end up generating a larger income stream, especially if you reinvest dividends along the way. That's the power of a rapid dividend growth rate, assuming dividend growth is what you are after.
There's a bit of a wrinkle here, however, since the current dividend yield of around 3.1% is toward the high end of NextEra Energy's range over the past decade. Sure, that's lower than the company's peers, but the historically high yield suggests it is the best time to buy this growth-oriented utility stock in a very long time.
NEE dividend yield data by YCharts.
3. NextEra is a two-in-one business
With a market cap of $120 billion, NextEra is one of the largest utilities in the United States. But it isn't your typical utility.
The foundation of NextEra Energy is its Florida Power & Light business, which is a typical regulated utility (it has a monopoly in the areas it serves, but must get rates and investment plans approved by the government). This division has benefited from people moving to the Sunshine State for years, and that is likely to continue, so the business fundamentals are strong.
But on top of that business, NextEra has built one of the world's largest contracted clean-energy businesses, which is the real growth engine for the company. The mix between the two is roughly 70% regulated business, 30% clean-energy operations. And, notably, that breakdown is built on an investment-grade balance sheet. So it is operating from a strong financial position.
|
Capacity Today |
Development Projects 2023-2026 |
|
|---|---|---|
|
NextEra Energy resources |
34 gigawatts |
32.7 to 41.8 gigawatts |
Data source: NextEra Energy.
The utility operation is likely to produce slow and steady growth over time, which is fairly typical for a regulated utility. But the clean energy business has massive growth plans.
As the table above shows, the clean energy business, known as NextEra Energy Resources, currently has 34 gigawatts of capacity today. But it hopes to more than double that by 2026.
And a huge percentage of the growth it expects is already in the backlog (21 gigawatts worth) because the company already has contracts to build it. Even if NextEra Energy doesn't get to the high end of its target, it already has a substantial amount of growth, more or less, baked in.
NextEra Energy is a great diversification tool
If you are a dividend investor looking for high yields, it would be understandable if you passed on NextEra Energy. But if you are focused on dividend growth, this utility stock is one that should be high up on your buy list.
It is odd for a utility to offer such high dividend growth rates, which means it could be a good way to add diversification to a portfolio that might be concentrated in a small number of industries known more for dividend growth.
Don't underestimate the value of that, though. Given its impressive dividend bona fides, NextEra Energy is still worth considering even if diversification isn't important to you.
