Utilities are generally thought of as boring investments, which is true in many cases. But NextEra Energy (NEE -1.36%) bucks the trend in a good way. The price of the stock is up 3,750% since 1980. That's a long time for sure, but long-term investors have benefited mightily from owning this millionaire-making utility.
The best part of the story, however, is that the stock is currently in a funk, and offering investors a historically attractive chance to buy. Here's what you need to know.
NextEra Energy is a different kind of utility
There are two parts to NextEra Energy's utility business. The first, which makes up around 70% of the company, is a fairly boring regulated utility. This is similar to what most utilities own, but there's a growth twist: NextEra Energy owns Florida Power & Light, the largest utility in the state of Florida. The Sunshine State has benefited from net population growth for years. More residents means more customers, and that leads to top-line growth for utilities.
Image source: Getty Images.
The key to this business is that it is regulated. That means that NextEra Energy has a government-granted monopoly in the regions it serves, but it must get its rates and investment plans approved by regulators. Regulators focus on balancing reliable, cost-effective power access for customers against providing adequate returns for NextEra Energy. This business is generally a slow and steady grower, providing a solid foundation for NextEra Energy's other business.
The second big story here, at around 30% of the overall company, is NextEra Energy Resources. That's a pretty nondescript name for a business that counts itself as one of the largest producers of solar and wind power in the world. This is the company's growth engine. To put some numbers on that, NextEra Energy Resources currently has 36 gigawatts of generating capacity. Management is hoping to increase that by as much as 41.8 gigawatts by the end of 2026. In other words, the business could double in size.
Given the transition the world is making away from carbon-based energy and toward renewable and cleaner power sources, it seems likely that there's a long runway for growth here. That in turn should power earnings and dividend growth for years to come, maintaining NextEra Energy's status as an exciting growth and income play.
An opportunity to buy NextEra Energy?
As the chart above shows, NextEra Energy's stock price is up massively over the long term. It has clearly helped make many shareholders rich over that span. But look at the tail end of the graph -- the stock has fallen notably from its highs. The reason for this is largely related to two factors.
First, interest rates have risen. That will increase the company's costs, but regulators are highly likely to adjust for that, as will the market-driven renewable power business. Given enough time, investment returns will recover. Second, Wall Street has broadly soured on the clean energy business after an initial period of what might best be described as over-exuberance. The transition to clean energy will likely take decades, however, so investors probably don't need to worry too much about this business suddenly becoming a dog.
The recent price drop, meanwhile, has pushed the dividend yield up to 3.4%. That's near the highest levels in a decade. Given that the dividend has been increased annually for 29 consecutive years and management is currently calling for roughly 10% annualized dividend increases through 2026, the historically high yield looks like a buying opportunity.
A growth-oriented utility
NextEra Energy isn't going to be a great fit for every investor -- the dividend yield might not be high enough for those focused on maximizing the income they generate, for example. However, if you are a growth investor or a growth and income investor, this utility has an incredible track record of making investors wealthy and a historically high yield. That's something that you should not pass up if you are trying to build a million-dollar portfolio (or even if you already have one).
