NextEra Energy (NEE -1.36%) has been a powerful income producer over the years. The utility has more than a quarter century of dividend increases under its belt. These haven't been token raises to keep its streak alive. NextEra has grown its payout at an 11% compound annual rate over the last 10 years. That's impressive, considering it operates in the slower-growing utility sector.
The company recently delivered its latest dividend increase, boosting the payout by 10%. It expects to maintain that rate for at least the next couple of years. That makes it a great stock for those seeking a rapidly rising income stream.
The powerful growth will continue
NextEra Energy recently updated its dividend policy. The utility set its prior plan in 2022, targeting to increase its dividend by around 10% per year off that year's base through at least 2024. With this year's 10% raise, the company has delivered on its original plan.
It's now extending that outlook through 2026. Again, it's targeting roughly 10% annual dividend growth off this year's base, this time through at least 2026.
A few factors fuel its confidence to extend its dividend growth target further into the future. One crucial driver is its expected earnings growth:
Image source: NextEra Energy.
As that slide shows, the company expects to grow its adjusted earnings per share at or near the top of its 6% to 8% annual target range through 2026. That would put its total growth rate around 9.4% annually since 2021.
Meanwhile, the company can grow its payout faster than its projected earnings growth rate because it has a strong financial profile. CEO John Ketchum noted in the press release unveiling its updated dividend policy that the company had a "59% payout ratio at the end of 2023, below the peer average of approximately 65%." That lower dividend payout ratio gives it more room to increase its payment. NextEra also boasts of having a strong balance sheet. That gives it additional financial flexibility to fund its growth while increasing the dividend.
Unlikely to run low on power anytime soon
While NextEra Energy's current dividend growth outlook only goes through 2026, the utility will likely be able to continue increasing its payout at a healthy rate beyond that year. A big driver is the growth that still lies ahead.
The company estimates that the U.S. economy will need to add 250 gigawatts (GW) of renewable energy and storage capacity in the 2027 to 2030 timeframe. That's 43% more than the company expects the country to add between 2023 and 2026. Meanwhile, the longer-term opportunity is even larger. NextEra Energy estimates that the U.S. economy will need to invest $4 trillion to build 7,000 GWs of renewable energy and storage capacity by 2050 to fully decarbonize.
NextEra Energy is in an excellent position to capitalize on this opportunity because it's already a leader in the field. It has the scale to develop renewable energy more efficiently and cost-effectively compared to smaller rivals. It also has a cost of capital advantage thanks to its strong financial position, which allows it to fund its growth at lower rates. These factors should enable it to develop projects at lower costs and higher returns, putting it in a strong position to capture lots of future growth opportunities.
On top of that, the company is increasingly investing in adjacent sectors to add new growth platforms. For example, it's an early investor in green hydrogen, which uses renewable energy to produce an emissions-free fuel source. Green hydrogen could be a significant growth driver beyond 2026. It's also building new electricity transmission lines to transmit renewable energy to the grid.
A top dividend growth stock for the long-term
NextEra Energy has been a magnificent dividend stock over the years by growing its payout at a high rate. That should continue in the future. Given its attractive yield (currently 3.3%), NextEra's growing earnings and payout could give it the fuel to produce strong total returns. Those features make it a great dividend stock to buy and hold for the decades to come.
