Where will NextEra energy be in 3 years?

The energy of the next era (FROM HOME 2.34%) is an oddity in the utilities sector. It has generated quite rapid earnings and dividend growth in what is usually seen as a somewhat sleepy sector of the market. Management provides earnings and dividend forecasts through 2026. Here’s what this forecast suggests about the future for NextEra Energy investors.

What does NextEra Energy do?

Before we dive into management’s guidance, it’s important to learn a little more about NextEra Energy. For starters, it owns the largest regulated utility in the state of Florida, Florida Power & Light. This is a strong foundation given that the Sunshine State has seen strong migration for years. More customers mean more revenue and more reasons for regulators to approve NextEra Energy’s capital spending plans and rate increases. The likely result here over the next three years will be slow and steady growth.

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In addition to this core business, NextEra Energy is also one of the largest producers of solar and wind energy in the world. This is a growth segment for the company as solar and wind power increasingly displace older, coal-fired energy sources. NextEra Energy expects to potentially double its clean energy generation capacity over the next three years. The trajectory here is bigger and better.

What is NextEra Energy aiming for?

Overall, NextEra Energy has an interesting story to tell. But what does all this mean? According to management, earnings per share are likely to grow in the range of 6% to 8% annually through 2026. The dividend is expected to grow by a massive 10% annually over that period (which is basically in line with annual growth over the last decade). . But perhaps more exciting is the following comment: “We will be disappointed if we are unable to achieve financial results at or near the upper end of our adjusted expected EPS ranges through 2026.” That’s a bold commitment!

Using the easiest number to start with, NextEra Energy has paid a dividend of $1.87 per share in 2023. It has already made one increase, bringing the annual total to $2.06 per share at the current rate in 2024. So the company has already provided one year dividend increase by 10%. Add two more years of 10% dividend growth and the dividend would be about $2.50 per share per year. For the dividend yield to remain at its current level of 2.7%, the company’s stock would need to rise to around $90 per share. That’s well above the current share price of around $77.

NEE PE data by YCharts

On the earnings side, company guidance suggests 2026 earnings of $3.63 to $4.00 per share. Using the $90 share price target extrapolated above, the low end of this indicative range would suggest a price-to-earnings (P/E) ratio of around 25. The high end of the range would suggest a P/E ratio of around 22.5. Neither is that far off the current P/E of around 21, and both are below the recent P/E trend of above 30.

Wall Street is fickle, but NextEra’s story is compelling

There’s no telling how investors will value the stock in the future, even if it delivers strong results, as NextEra Energy suggests. And these are actually growth and income or dividend stocks, so those looking for a high yield probably won’t find NextEra Energy particularly interesting. However, given the company’s guidance, it looks like the next three years could be very successful for NextEra Energy and its shareholders.