NextEra Energy (NEE -1.49%) is an oddity in the utility sector. It has generated fairly rapid earnings and dividend growth in what is usually viewed as a somewhat sleepy sector of the market. Management is providing earnings and dividend guidance out to 2026. Here's what that forecast suggests about the future for NextEra Energy investors.
What does NextEra Energy do?
Before delving into management's guidance, it is important to understand a bit more about NextEra Energy. For starters, it owns the largest regulated utility in the state of Florida, Florida Power & Light. That's a strong foundation given the fact that the Sunshine State has seen robust in-migration for years. More customers means more revenue, and more reasons for regulators to approve NextEra Energy's capital spending plans and rate increases. Slow-and-steady growth is the likely outcome here over the next three years.
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In addition to that core operation, NextEra Energy is also one of the largest producers of solar and wind power on the planet. This is the company's growth segment, because solar and wind power are increasingly displacing older, carbon-powered energy sources. NextEra Energy expects to potentially double its power capacity on the clean energy side of its business over the next three years or so. So bigger and better is the trajectory here.
What NextEra Energy is guiding toward
So all told, NextEra Energy has a strong story to tell. But what does this all mean? According to management, earnings per share is likely to expand between 6% and 8% a year through 2026. The dividend is projected to grow at a huge 10% or so a year over that span (that's basically in line with the annualized increase over the past decade). But what's perhaps more exciting is this comment: "We will be disappointed if we are not able to deliver financial results at or near the top end of our adjusted EPS expectations ranges through 2026." That's a bold commitment!
Taking the easiest number to start, NextEra Energy paid a dividend of $1.87 per share in 2023. It has already made one increase, bringing the annualized tally up to $2.06 per share at the current rate in 2024. So the company has already provided one year of 10% dividend growth. Add in two more years of 10% dividend growth and the dividend would be around $2.50 per share per year. For the dividend yield to remain at its current 2.7% or so, the stock would have to rise to roughly $90 per share. That's notably above the current $77 or so share price.
NEE PE Ratio data by YCharts
On the earnings front, the company's guidance suggests that 2026 earnings will come in between $3.63 and $4.00 per share. Using the $90 share price target extrapolated above, the low end of that guidance range would indicate a price-to-earnings (P/E) ratio of around 25. The high end of the range suggests a P/E of about 22.5. Neither of those is that far out of line with the current P/E of around 21, and both are below the recent trend of P/Es above 30.
Wall Street is fickle, but NextEra's story is attractive
There's no telling how investors will value a stock in the future even if it produces strong results like NextEra Energy is suggesting it will. And this is really a growth-and-income or dividend growth stock, so those in search of a high yield probably won't find NextEra Energy all that interesting. However, given the company's guidance, it looks like the next three years could be very successful ones for NextEra Energy and its shareholders.
