NextEra Energy, Inc. (NEE), through its subsidiaries, engages in the generation, transmission, distribution, and sale of electric energy in the United States and Canada. The company is a member of the dividend achievers index, and has boosted distributions for 18 years in a row.
The company’s last dividend increase was in February 2012 when the Board of Directors approved a 9.10% increase to 60 cents/share. The company’s peer group includes Entergy (ETR), Northeast Utilities (NU) and PPL Corp (PPL).
Over the past decade this dividend growth stock has delivered an annualized total return of 14.10% to its shareholders.
The company has managed to deliver an 8% average increase in annual EPS since 2003. Analysts expect NextEra Energy to earn $4.54 per share in 2012 and $4.95 per share in 2013. In comparison, the company earned $4.59/share in 2011. The company has been able to generate a high growth on earnings, which is something very rare for a utility.
Long-term growth will be driven by increases in its rate base due to investment in new assets. Continued increase in customers should further aid profitability amid expansion in the Florida economy. Growth will also be aided by the company’s unregulated electric wholesaler Nexterra Energy, which keeps increasing capacity through building green energy projects in Wind and Solar.
The return on equity has increased from 10.70% in 2002 to 13.10% in 2011. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 7% per year over the past decade, which is lower than the growth in EPS.
A 7% growth in distributions translates into the dividend payment doubling almost every decade years. The company’s current annual distribution is double what it was nine years ago.
The dividend payout ratio has been decreasing over the past decade, falling from almost 58% in 2002 to 48% in 2011. NextEra Energy has the lowest dividend payout ratios for a utility company. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently NextEra Energy is attractively valued, trading at 13.10 times earnings and yielding 3.60%. I like the above average dividend growth potential as well as the low dividend payout ratio. I would consider adding to my position in the stock subject to availability of funds.
Full Disclosure: None
- Dividend Achievers Offer Income Growth and Capital Accumulation
- My Entry Criteria for Dividend Stocks
- Utility dividends for current income
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