Is NextEra Energy stock worth buying?

The energy of the next era (NYSE:NEE) it has a dividend yield of around 2.7% today. Income investors and those with a value orientation probably won’t want to buy its stock, but if you like dividend stocks, the 10% annual payout growth that NextEra Energy has achieved over the last decade will probably make you feel better.

And if management is right, the future looks as good as the past in terms of dividend growth.

Why Some People Won’t Like NextEra Energy

NextEra Energy has one major problem: Wall Street knows it is a very well-run energy company. Therefore, the yield is 2.7%, which is below the utility sector average of 3%, when applied Vanguard Utilities ETF Index (NYSEMKT: VPU) as representative.

Sure, NextEra returns more than the 1.3% you’d get from an S&P 500 index fund, but it’s just not a high-yield stock. Dividend investors and those who focus on value – noting that yields have been middle-of-the-road at best over the past decade – will likely want to look at utilities with higher yields.

That said, the current dividend yield is not a reason to buy NextEra Energy. What is true is the dividend growth, which has increased by over 180% over the last 10 years.

The company’s stock rose by almost the same amount during this period, leading to an impressive total return of over 260% after dividend reinvestment. It’s better than S&P500 index that delivered a total return of approximately 225% over the same period. Step back for a moment: NextEra, a utility company, beat the S&P 500!

But there is another number that may interest you: the profitability of the purchase price. If you bought NextEra Energy in 2013 at its most expensive point, you would have paid $22.4375 per share, after factoring in the 4-to-1 stock split in 2020. The fourth-quarter 2013 annual dividend was $0.66 per share for the purchase yield at a level of approximately 2.9%.

At the end of the second quarter of 2024, the annual dividend was $2.06 per share, which would mean the yield calculated on the purchase price has increased to a whopping 9.2% in just over a decade. If you like dividend growth, you’ll love NextEra Energy.

The future looks bright for NextEra Energy

NextEra Energy achieved this dividend growth by building a large renewable energy business based on regulated utilities in Florida. Clearly, the business model has performed well, given the dividend growth.

NextEra believes that the next few years will be as good as the last decade. Right now, the company is calling for earnings growth of 6% to 8% annually through at least 2027. This will lead to dividend growth of 10% annually through at least 2026.

The story continues

What supports this perspective? Management expects electricity demand in the United States, driven by demand for renewable energy, to increase significantly in the coming years.

Some numbers will help: Between 2000 and 2020, electricity demand increased by just 9%, but NextEra believes that between 2020 and 2040, demand will increase by 38%. This is a drastic change in a sector that has historically been considered quite sleepy.

But the really important part of this story is that NextEra Energy’s decades-long clean energy expertise allows it to benefit from the expected push into renewable energy. And if you buy NextEra today, you and the company can reap the benefits.

NextEra Energy is always expensive

If you bought the stock in 2013 when the dividend yield was 2.9%, you’d probably be a pretty happy dividend growth investor today. However, this yield is quite close to today’s yield of 2.7%, suggesting that NextEra Energy stock has been expensive to own for a very long time. However, if you’re looking for dividend growth, this tool has proven that paying for quality can work very well in the long run.

Is it worth investing $1,000 in NextEra Energy now?

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Reuben Gregg Brewer has no position in any of the companies mentioned. The Motley Fool holds positions on and recommends NextEra Energy. The Motley Fool has a disclosure policy.

Is NextEra Energy stock worth buying? was originally published by The Motley Fool