Can Buying NextEra Energy Stocks Today Set You Up for Life?

If you’re looking to generate income for life by buying dividend stocks, you might ignore this The next era of energy (NYSE: No) Because its return is “only” 3%. This is about average for utilities, and there are plenty of high-yielding options you can consider, both inside and outside of the utilities sector. But there is an important factor to consider here that may change your mind. NextEra’s earnings have grown, and look set to continue to grow, at an exceptionally fast pace. That’s why these dividend stocks can entitle you to income for life.

NextEra is really two companies in one. The essence of the work is Regulated benefit practical. This is basically a slow and steady basis. Like all regulated utilities, Florida-based NextEra’s utility operations have been granted a monopoly in the markets they serve. It then has to get capital investment plans and price increases approved by the government. In most cases, this is not the approach that leads to rapid growth.

However, Florida has benefited from internal migration for decades, so the population has been growing rapidly. More customers means more income, and it also means that a higher level of investment is needed to keep up with demand. So, even though the regulated side of NextEra Energy’s business is the slower-growing side, it still has an advantage compared to other utilities.

Other important businesses of NextEra Energy are Clean energy process. This business is built on long-term contracts, so it is a very reliable source of cash. Demand for clean energy is high, and the company is able to expand this business quickly. For example, the administration expects up to 46.5 gigawatts of renewable energy to be installed by 2027, up from 36 gigawatts today. In other words, this business will likely double in size within a few years.

If you buy NextEra Energy now, you’ll get a 3% dividend yield, which, as mentioned, is average in the utilities sector. But NextEra Energy stands out from the average utility in one very important way — earnings growth. Over the past decade, dividends have grown approximately 10% year over year. This is a huge number in the utilities sector, where 5% growth is considered very good.

NextEra Energy expects dividends to grow 10% annually through at least 2026. And unless it faces some sort of major headwind, history suggests that dividends can continue to grow at this rate beyond 2026. Given all the dividend increases, over time, the return on purchase price with NextEra Energy becomes an important metric to consider.

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Some math will help here. If you bought NextEra Energy at its high price in 2013, your share would cost $22.45 (this number, and others mentioned here, have been adjusted for a 4:1 stock split in 2020). The quarterly dividend at that point was $0.165 per share, resulting in a yield of about 2.9%, which is about the same as today’s yield. However, after years of rapid earnings growth, today’s earnings are $0.515 per share, resulting in a yield on the purchase price of over 9%! Oh, and the stock is around $69 today, so you’ve benefited from notable capital appreciation along the way.

High-yielding stocks often have slow earnings growth rates. So, while maximizing income today may sound good, you’ll likely end up with only modest growth in your income stream over time — often close to the rate of inflation growth (essentially low single digits). That’s not a bad result, but if you’re willing to give up yield a bit and buy dividend growth stocks like NextEra Energy, you can boost your income portfolio.

NextEra Energy certainly doesn’t look like a high-yielding stock right now, but continued earnings growth could quickly turn it into one of the highest returns on purchase price investments. This can help set you up for a lifetime of income that not only keeps up with inflation, but beats it over the long term.

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Robin Gregg Brewer He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool has Disclosure policy.

Can Buying NextEra Energy Stocks Today Set You Up for Life? Originally published by The Motley Fool