One of the smartest things you can do as an investor is focus on megatrends that should drive above-average growth in the coming years. The top companies focused on a major growth trend tend to deliver strong earnings growth and total returns over the long term.
U.S. power demand is becoming a massive growth trend. After barely rising over the last two decades, forecasters expect electricity demand in the country to surge 55% by 2040. Several catalysts will power this acceleration, including artificial intelligence (AI) data centers, the electrification of transportation, and the onshoring of manufacturing. This catalyst drives the view that the U.S. will need to add a staggering 450 gigawatts (GW) of new power generation capacity by 2030.
NextEra Energy (NEE 0.35%) is in a strong position to capitalize on this megatrend. Here's a look at whether the utility is one of the smartest investments you can make right now.
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A leader in the field
"NextEra Energy is the quintessential 'all-forms-of-energy' company," stated CEO John Ketchum on the first-quarter earnings conference call. He noted that his company knows "renewables and storage because we're a world leader in the space." NextEra also knows "gas because we operate the largest gas-fired fleet in America and have built more gas-fired generation than anyone over the last two decades," and "nuclear because we operate one of the largest fleets in the United States." Further, NextEra Energy knows "how to serve growth because we've been doing it for decades across the United States."
The company currently has 72 gigawatts of power generation capacity across the country. It's the largest electric utility in America and a leading North American clean energy company. NextEra's massive scale gives it a huge competitive advantage. Its years of experience in the development of renewable power have made it a leader in the sector. It's the No. 1 originator of renewable energy development projects among power and commercial and industrial customers, with a 20% share of the market.
The power to grow
NextEra Energy's leadership in the sector puts it in a strong position to grow its business and shareholder value in the future. The company plans to invest about $120 billion in American energy infrastructure over the next four years. It's investing that capital in renewable energy projects (more than 25 GW of projects currently in its backlog), energy transmission lines, and other energy infrastructure projects. The company expects these investments will help grow its adjusted earnings per share at or near the high end of its 6% to 8% annual target range through 2027. It will also support dividend growth of around 10% per share through at least next year.
The company's longer-term growth outlook is just as bright. NextEra Energy has a 300 GW pipeline of renewable and storage projects under development. Meanwhile, it partnered with gas turbine maker GE Vernova earlier this year to leverage their combined expertise and build new gas power generation. The companies expect to spend the next few years identifying projects they'll build and own to support large power purchasers like AI data centers. NextEra Energy is also looking to restart one of its dormant nuclear power plants and explore the potential of small modular reactor technology.
With so much power demand ahead, NextEra Energy could grow its earnings and dividends at above-average rates for years to come. That positions the company to create significant value for shareholders in the future. Over the past 20 years, the company has grown its adjusted earnings per share at a 9% compound annual rate while increasing its dividend at around a 10% yearly rate. These growth drivers have powered market-crushing total returns (over 15% annualized for NextEra compared to around 10% for the S&P 500).
A wise choice
NextEra Energy is a leader in producing clean power in the country. Its large scale and sector expertise put it in a strong position to capitalize on the expected future surge in energy demand. The utility could continue growing its earnings and shareholder value at an above-average rate in the future. While there are no guarantees its future returns will match its past success, NextEra looks like one of the smartest investments you can make these days.
