NextEra Energy: A Fast-Growing, High-Yielding Utility Stock

Regulated utilities have long been a staple of dividend portfolios, and a handful of them are included in our list of the best high dividend stocks for good reason. Their highly stable business models generally make for attractive and safe current yields, with slow but steadily-growing payouts.

Best of all, utilities generally have very low stock price volatility, making them ideal core holdings for low risk income portfolios and investors living off dividends in retirement.

However, there are a few fast-growing utilities that manage to provide most of the benefits of this industry, along with impressive payout growth and long-term total returns.

Such is the case with NextEra Energy (NEE), which has proven to be one of America’s best regulated utilities over the past few decades with an annualized return in excess of 12% since 1995.

Let’s take a closer look at what has made NextEra Energy such a remarkable success story and if this utility is likely to continue generating industry-leading growth over the coming years to make it a “buy and hold forever” dividend growth stock.

Business Description

Founded in 1984 as Florida Power & Light (FPL), NextEra Energy changed its name in 2010 to better represent its aggressive push into renewable solar and wind power (the company is the world’s number one generator of wind and solar energy).

Today the company provides electric utility services to 9.5 million Floridians via its 4.8 million FPL accounts; however the business has evolved into so much more. 

Source: NextEra Energy Investor Presentation

For example, the company is one of America’s largest electric utilities with 46.4 GW of capacity in 27 states and Canada. Close to 40% of that capacity comes from the company’s widely diversified solar and wind generation (part of its NextEra Energy Resources subsidiary), which makes it America’s largest renewable energy supplier.

NextEra Energy appears to be well positioned for a low carbon future, thanks to one of the least carbon intensive generator fleets in the industry.

To help supply cheap gas to its power plants, as well as serve as an additional way of diversifying into stable cash flow sources, NextEra Energy also has a fast-growing midstream gas pipeline business (also part of its NextEra Energy Resources subsidiary).

Source: NextEra Energy-Oncor Electric Merger Presentation

In addition, the recent $18.4 billion acquisition of Oncor Electric, the largest electricity distributor in Texas, will likely provide a strong long-term earnings boost to NextEra, courtesy of synergies provided when it combines Oncor’s 119,000 miles of transmission lines with its own fast-growing wind and pipeline assets in the state.

As you can see, currently NextEra’s rate-regulated utility Florida Power & Light remains its largest business. However, NextEra Energy Resources, the company’s diversified clean energy company, is the key growth catalyst that makes this such an interesting long-term dividend growth investment.

Business Segment % Of Revenue % Of Net Income Florida Power & Light 67% 60% NextEra Energy Resources 31% 38% Other 3% 2% Total 100% 100%

Source: Q4 2016 Earnings Release

Business Analysis

Don’t let the apparent variability of NextEra Energy’s sales and earnings growth fool you. That variability is largely a result of the company’s wind assets, which make for moderate amounts of revenue volatility.

Source: Simply Safe Dividends

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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