NextEnergy's Proposed Dividend Increases for 2025 and 2026: A 10% Rise in Each Year.
NextEra Energy (NEE, up by 0.75%) offers investors a yield of approximately 2.8%. compared to the typical utility stock, as represented by the Utilities Select Sector SPDR ETF, which yields around 2.7%. At first glance, NextEra Energy might appear to be a common utility stock. However, this assessment couldn't be further from the truth. Here's why dividend growth investors should find NextEra Energy appealing.
What is NextEra Energy's role?
Most utilities concentrate on delivering electricity or natural gas to consumers. NextEra Energy also does this, with its main division managing controlled electric assets in Florida. This state has experienced steady population growth due to migration for years. This trend has contributed to modest and steady growth for NextEra Energy, as an increased number of customers leads to higher revenues. Additionally, increased customers generally makes it simpler to secure regulatory approval for capital expenditure plans. While these factors make NextEra Energy an appealing utility stock, they do not make it exceptional.
What distinguishes NextEra Energy from other utility firms is its focus on investing in clean energy assets. While many utilities are exploring this realm, NextEra Energy's long-term commitment to this sector has positioned it as one of the world's leading producers of solar and wind energy. As such, it stands out as one of the largest regulated utility firms in the United States and one of the largest global clean energy companies. This unique combination sets it apart from its competitors.
Moreover, NextEra Energy has demonstrated success in both areas. Its traditional regulated utility business has served as a stable foundation for its rapidly growing clean energy business. Evidence of this can be seen in the company's dividend, which has grown at an annualized rate of 10% over the past decade. Impressively, this growth has been consistent, with 10% increases over the last one, three, five, and ten-year periods. This is the type of company that dividend growth investors will want in their portfolios. Furthermore, its industry-average yield may also offer some diversification benefits, as the utility sector is not typically associated with dividend growth opportunities.
What does the future hold?
While the previous discussion focused on the past, investors are primarily concerned with the future. Based on NextEra's slightly higher dividend yield compared to the average utility, one might assume that future growth may not be as robust. However, this is an incorrect assumption.
Currently, NextEra is anticipating earnings growth between 6% and 8% per year through 2027. Consequently, management expects to increase the dividend by 10% in 2025 and by a similar margin in 2026. This dividend growth machine remains on track and even looks appealing compared to other utilities due to the dynamics of yield.
The primary growth catalyst here comes from the clean energy sector, where management expects to build up to 46.5 gigawatts of capacity by 2027. However, let's not forget that NextEra Energy continues to own appealing and expanding regulated utility assets in Florida. This means that attractive growth is happening on both sides of the business. By combining the two, you get a powerful industry leader that is poised to continue rewarding dividend growth investors well. It wouldn't be surprising to see the dividend continue to grow at an above-average pace beyond the current 2026 outlook provided by management.
NextEra Energy isn't suitable for all dividend investors
So far, the discussion about NextEra Energy has centered around dividend growth, with only a brief mention of its roughly average yield. This focus should make it a strong draw for dividend growth investors, but an average yield likely won't appeal to investors seeking to maximize current income. Therefore, this is not a one-size-fits-all investment. However, if you value diversification and are focused on dividend growth, NextEra Energy may warrant a place in your portfolio, allowing you to enjoy its appealing yield and the projected 10% dividend growth in 2025 and 2026.
NextEra Energy's focus on investing in clean energy assets, as seen in its position as one of the world's leading producers of solar and wind energy, requires significant financial resources. This investment in sustainable energy sources is funded through financing and potentially through reinvested earnings from the company's traditional utility business.
Investors seeking to capitalize on NextEra Energy's clean energy growth, as well as its steady dividend growth, must be prepared to invest in a company with a slightly lower yield compared to typical utility stocks. However, the potential for above-average dividend growth and the diversification benefits offered by investing in the utility sector make NextEra Energy an attractive option for investors prioritizing dividend growth over a high current income yield.
