NextEra Energy: A Cash-Gushing Powerhouse with a Green Future
NextEra Energy (NEE 0.19%) stands out in the utility sector, not just for its above-average dividend yield of 3.4% but also for its remarkable ability to deliver market-beating total returns. Over the past decade, it has achieved a 13.1% average annualized total return, slightly outperforming the S&P 500. This success is attributed to its significant investments in renewable energy and infrastructure, setting the stage for sustained growth and potential to outperform the S&P 500 in the years to come.
A Cash-Gushing Machine
In 2023, NextEra Energy generated $11.3 billion in net cash from operating activities, allocating $3.7 billion to dividends, resulting in a low payout ratio of 59%. The company reinvested the remaining cash into expanding its electric utility in Florida (FPL) and its Energy Resources platform. Noteworthy projects include the addition of 1.2 gigawatts of solar projects and a pioneering 25-megawatt hydrogen pilot project. These strategic investments boosted its adjusted earnings by 9.3% per share last year, supporting a 10% increase in dividends.
The Fuel to Continue Beating the S&P 500
NextEra Energy Partners plans to invest between $85 billion to $95 billion through 2025 in infrastructure projects, including significant solar and wind capacity additions. These investments are expected to increase earnings by 6% to 8% annually through at least 2026, enabling a projected 10% annual dividend growth. With renewable energy demand in the U.S. forecasted to grow at a 13% compound annual rate through 2030, NextEra’s leading position in the industry positions it well for continued growth and market-beating returns.
The Power of Earnings Estimate Revisions
NextEra’s future performance is closely tied to revisions in earnings estimates. Currently, it is expected to post earnings of $0.75 per share for the current quarter, a -10.7% change from the year-ago quarter. However, the consensus earnings estimate for the current fiscal year points to an +8.5% change from the previous year. With recent adjustments in earnings estimates reflecting a positive outlook, NextEra’s Zacks Rank #2 (Buy) suggests it may outperform the broader market in the near term.
Revenue Growth Forecast and Valuation
The consensus sales estimate for the current quarter stands at $6.39 billion, marking a year-over-year change of -4.8%. For the current and next fiscal years, revenue estimates indicate modest growth. Despite the fluctuating revenue projections, NextEra’s valuation, graded C by the Zacks Value Style Score, suggests it is trading in line with its peers. This valuation, combined with its growth prospects, presents a compelling case for NextEra’s future stock performance.
As NextEra Energy continues to capitalize on the burgeoning demand for renewable energy, its strategic investments and robust financial health suggest it remains a powerful wealth creator. With a solid foundation in utility and renewable energy operations, NextEra is well-positioned to generate increasing cash flow, supporting ongoing dividend growth and the potential for market-beating returns. Will NextEra’s green energy focus and infrastructure investments secure its position as a leader in the renewable energy market?