Is NextEra Energy stock a buy?

NextEra Energy (NYSE:Nee) is a large, well-run utility. Historically, it seems pretty cheap. It’s the type of company that many investors would like to have in their portfolio, but it’s not a perfect fit for everyone. Here’s why NextEra Energy is a good buy, and why some people might want to ignore it.

NextEra Energy is doing well

NextEra Energy was able to increase its adjusted earnings per share by an average of 9.8% per year from 2012 to 2022. In 2023, adjusted earnings per share increased 9.3%. That translates into adjusted earnings growth of nearly 10% over 10 years. This is a very impressive number, especially for a utility. Utilities are generally thought of as slow-and-steady businesses that provide investors with a reliable source of income. But NextEra is not your typical utility.

Approximately 70% of NextEra’s business consists of regulated utility assets, primarily Florida Power & Light. The rest is from the company’s renewable power division. Regulated assets give NextEra a strong foundation. Essentially, they gain monopoly rights in the areas they serve in exchange for government approval of their rates and investment plans. That said, Florida has seen net migration over the years, resulting in a steady increase in customers. The renewable power business is the company’s growth platform, with approximately 34 gigawatts of production capacity and plans to more than double that number by 2026.

The combination is expected to increase adjusted earnings by 6% to 8% annually through at least 2026. It’s also worth highlighting that NextEra has a solid financial foundation to support its solid business, as it has an investment-grade balance sheet. In another sign of the company’s fortitude, the dividend has been increased every year for his nearly 30 years. It’s the boring, reliable type of stock that many investors like.

NextEra is not for everyone

The problem is that investors generally recognize the company’s strong performance and solid outlook. NextEra Energy’s dividend yield is 3.6%, which is average for a utility stock. Vanguard Utility Index ETF (NYSEMKT: VPU) As an industry representative. Therefore, an investor looking to maximize the returns he generates from his portfolio will probably not be thrilled with NextEra Energy.

story continues

But its 3.6% yield is near the highest level in a decade. If you think about it, it looks like it’s on sale right now. This is likely caused by rising interest rates, which will increase expenses for businesses. High costs are a headwind for growth.

That’s not great, but management still expects a 10% dividend increase in 2024. This is about the same rate achieved over the past decade. And while it probably won’t reach the double-digit range, the reasonable adjusted earnings forecast above should support continued dividend increases. Even if dividend growth slows to the same pace as adjusted earnings growth, NextEra Energy would still be an outstanding dividend growth stock in the utilities sector.

That’s the big story here. Yes, you can buy utilities at a higher yield. But you’d be much harder to find a utility with such a strong dividend growth profile. Investors focused on growth and returns, as well as dividend growth investors, will likely find NextEra Energy very attractive today.

NextEra isn’t perfect, but it’s very good

There’s no such thing as a perfect stock, so it’s no wonder some investors can’t see the appeal of NextEra Energy. That said, many investors will find this utility very attractive given the company’s solid business, strong balance sheet, and promising growth prospects. It is particularly suited for growth and income portfolios as it can add diversification to portfolios that are likely to have less exposure to utilities.

Should you invest $1,000 in NextEra Energy now?

Before buying NextEra Energy stock, consider the following:

of Motley Fool Stock Advisor Our analyst team has identified what they believe Best 10 stocks What investors can buy right now…and NextEra Energy wasn’t among them. These 10 stocks have the potential to generate impressive returns over the next few years.

stock advisor We provide investors with an easy-to-understand blueprint for success, including guidance on portfolio construction, regular updates from analysts, and two new stocks every month.of stock advisor Since 2002, the service has more than tripled S&P 500 returns*.

See 10 stocks

*Stock Advisor will return as of February 26, 2024

Reuben Brewer has no position in any stocks mentioned. The Motley Fool owns a position in NextEra Energy and recommends NextEra Energy. The Motley Fool has a disclosure policy.

Is NextEra Energy stock a buy? Originally published by The Motley Fool