If you are looking to create a lifetime’s worth of income by buying dividend stocks, you might overlook NextEra Energy (NYSE: NEE) because its yield is “only” 3%. That’s about average for a utility, and there are plenty of higher-yielding choices out there for you to consider, both inside and outside the utility sector. But there’s one important factor to consider here that might change your mind. NextEra’s dividend has grown, and looks like it will continue to grow, at an exceptionally rapid pace. Here’s why this dividend stock could set you up for a lifetime of income.
NextEra is really two companies in one. The core of the business is its regulated utility operation. This is, basically, a slow and steady foundation. Like all regulated utilities, NextEra’s Florida-based utility operations have been granted a monopoly in the markets it serves. It then has to get capital investment plans and rate increases approved by the government. In most cases, this is not an approach that leads to rapid growth.
That said, the state of Florida has benefited from in-migration for decades, so the population has been growing rapidly. More customers mean more income, and also mean 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 is still advantaged relative to other utilities.
NextEra Energy’s other important business is its clean energy operation. This business is built on long-term contracts, so it is a highly reliable cash generator. Demand for clean energy is high, and the company is able to expand this business rapidly. For example, management expects to install as much as 46.5 gigawatts of renewable energy by 2027, up from 36 gigawatts today. In other words, this business is likely to double in size in just a few years.
If you buy NextEra Energy right now, you’ll collect a 3% dividend yield, which, as noted, is about average in the utility sector. But NextEra Energy stands out from the average utility in one very important way — dividend growth. Over the past decade, the dividend has grown at roughly 10% a year on an annualized basis. That’s huge in the utility sector, where 5% growth is considered very good.
NextEra Energy expects the dividend to grow by 10% a year through at least 2026. Unless it runs into some sort of major headwind, history suggests that the dividend can keep growing at that rate beyond 2026. Given all the dividend increases, over time the yield on purchase price with NextEra Energy becomes an important metric to consider.
