NextEra Power (NEE -0.42%) has been a strong earnings producer over time. The utility has greater than 1 / 4 century of dividend will increase underneath its belt. These have not been token raises to maintain its streak alive. NextEra has grown its payout at an 11% compound annual price during the last 10 years. That is spectacular, contemplating it operates within the slower-growing utility sector.
The corporate lately delivered its newest dividend enhance, boosting the payout by 10%. It expects to take care of that price for at the least the subsequent couple of years. That makes it an excellent inventory for these looking for a quickly rising earnings stream.
The highly effective development will proceed
NextEra Power lately up to date its dividend coverage. The utility set its prior plan in 2022, concentrating on to extend its dividend by round 10% per yr off that yr’s base by way of at the least 2024. With this yr’s 10% increase, the corporate has delivered on its authentic plan.
It is now extending that outlook by way of 2026. Once more, it is concentrating on roughly 10% annual dividend development off this yr’s base, this time by way of at the least 2026.
A number of components gasoline its confidence to increase its dividend development goal additional into the longer term. One essential driver is its anticipated earnings development:
Picture supply: NextEra Power.
As that slide reveals, the corporate expects to develop its adjusted earnings per share at or close to the highest of its 6% to eight% annual goal vary by way of 2026. That may put its complete development price round 9.4% yearly since 2021.
In the meantime, the corporate can develop its payout quicker than its projected earnings development price as a result of it has a robust monetary profile. CEO John Ketchum famous within the press launch unveiling its up to date dividend coverage that the corporate had a “59% payout ratio on the finish of 2023, under the peer common of roughly 65%.” That decrease dividend payout ratio provides it extra room to extend its cost. NextEra additionally boasts of getting a robust steadiness sheet. That provides it extra monetary flexibility to fund its development whereas rising the dividend.
Unlikely to run low on energy anytime quickly
Whereas NextEra Power’s present dividend development outlook solely goes by way of 2026, the utility will doubtless be capable of proceed rising its payout at a wholesome price past that yr. A giant driver is the expansion that also lies forward.
The corporate estimates that the U.S. economic system might want to add 250 gigawatts (GW) of renewable power and storage capability within the 2027 to 2030 timeframe. That is 43% greater than the corporate expects the nation so as to add between 2023 and 2026. In the meantime, the longer-term alternative is even bigger. NextEra Power estimates that the U.S. economic system might want to make investments $4 trillion to construct 7,000 GWs of renewable power and storage capability by 2050 to totally decarbonize.
NextEra Power is in a superb place to capitalize on this chance as a result of it is already a frontrunner within the subject. It has the dimensions to develop renewable power extra effectively and cost-effectively in comparison with smaller rivals. It additionally has a value of capital benefit because of its sturdy monetary place, which permits it to fund its development at decrease charges. These components ought to allow it to develop tasks at decrease prices and better returns, placing it in a robust place to seize plenty of future development alternatives.
On high of that, the corporate is more and more investing in adjoining sectors so as to add new development platforms. For instance, it is an early investor in inexperienced hydrogen, which makes use of renewable power to provide an emissions-free gasoline supply. Inexperienced hydrogen might be a major development driver past 2026. It is also constructing new electrical energy transmission strains to transmit renewable power to the grid.
A high dividend development inventory for the long-term
NextEra Power has been an impressive dividend inventory over time by rising its payout at a excessive price. That ought to proceed sooner or later. Given its engaging yield (at the moment 3.3%), NextEra’s rising earnings and payout may give it the gasoline to provide sturdy complete returns. These options make it an excellent dividend inventory to purchase and maintain for the a long time to come back.
Matt DiLallo has positions in NextEra Power. The Motley Idiot has positions in and recommends NextEra Power. The Motley Idiot has a disclosure coverage.
