NEE Dividend Growth Is Outstanding
Using NEE stock as an example, sometimes my biggest investment mistakes aren’t the actions I take.
In contrast, they are the actions I don’t take. And NextEra Energy stock with its fast-growing NEE dividend falls into that category.
Let me explain. Way back in 2009 I bought 100 shares of Florida Power & Light, also known as FPL Group, for less than $50 a share.
You might remember 2009? Stocks had been crushed by a real estate bust and banking crisis leading to the deepest, darkest recession in most of our lifetimes. It was pretty ugly and at times it seemed the world as we knew it was coming to an end.
Before I move on, just a quick side note. In March 2010, FPL Group changed its name to NextEra Energy, Inc (NYSE: NEE). The company did this to modernize their company image. And NextEra Energy stock is our focus today.
Since NextEra Energy stock is a mouthful, I will refer to the company by its New York Stock Exchange symbol, NEE. I will use “NEE stock” for short.
So now let me continue with my financial tale.
Buy More NEE Stock For The Attractive NEE Dividend?
Normally, I establish a position in a dividend stock with multiple purchases over a period of weeks or months. Why? I never know where the stock is heading in the short term. So I like to hedge my bets with multiple smaller purchases.
Jim Cramer explains this investing technique on his CNBC TV show Mad Money. But this time around, I did not make any additional purchases.
Reinvesting My NEE Dividends Back Into NEE Stock
However, I did reinvest the NEE dividends for 4 years after my original purchase. Automatic dividend reinvestment added another 15 shares to my holdings. But I even stopped automatic dividend reinvestment in 2013 along with many of my other holdings.
I considered adding to my NEE stock position on a few occasions. But the stock’s valuation always seemed too high.
And that was not all.
The NEE stock dividend yield was too low for creating a consistent dividend income stream. In hindsight, a short-sighted perspective.
Very Close To An Add On Buy Of NEE Stock To Get More NEE Dividends
I got very, very close to making additional purchases in late 2016 into early 2017. But we were moving and the Dividends Diversify family had a lot going on.
For a short time, we owned two houses. The old one we were selling and the new one we bought.
Because of this, my available funds were in short supply. In addition, the market was unsettled and choppy at the time. Finally, I was feeling a little more risk-averse than usual. So once again I did not purchase more NEE stock.
My Biggest Mistake With NEE Stock
And today, 10 years later I still have those 115 shares that cost me a little more than $5,000. The good news is the shares have nearly quadrupled in value. And I have collected many quarterly dividend payments in cash.
So what is the bad news? I didn’t add on to my position in the early going like I usually do.
And that leads me back to the moral of the story. Sometimes an investor’s biggest mistakes are the actions we fail to take. Rather, than the actions, we do take.
To explain, all good investors should have 3 tools in their tool kit. I call them timeless investing principles.
3 Timeless Investing Principles
Every investor should have….
- Well thought out investment objectives
- A strategy to achieve those objectives
- Consistent execution of that strategy
I failed at number 3 by not building my position in NEE stock over time. And then letting the NEE dividends continue to roll in.
NEE Stock Performance
The result of this failure to execute my strategy?
Even with recent market volatility, the NEE stock price has more than doubled in the last 5 years. Add in the consistent quarterly dividend I missed out on collecting with additional investments, and you can see my pain.
Okay, that’s my story. And I am sticking to it.
So let’s get on with a NEE stock analysis and take a close look at the NEE dividend.
Is NEE stock a good investment. Is NEE a good stock to buy? We will answer these questions about the stock plus more about the NEE dividend.
So, let’s dive into our NEE stock analysis and dividend review.
NEE Company Background
NEE is one of the largest electric power and energy infrastructure companies in North America. The company is also a leader in the renewable energy industry.
NEE has two primary businesses, FPL and NEER.
FPL is the largest electric utility in the state of Florida and one of the largest electric utilities in the U.S. FPL’s strategic focus is centered on investing in generation, transmission, and distribution facilities.
They strive to deliver on their goals of low bills, high reliability, outstanding customer service, and clean energy solutions for their more than five million customers.
NEER is the world’s largest generator of renewable energy. This energy is sourced from the wind and sun.
NEER’s strategic focus is centered on the development, construction, and operation of long-term contracted assets throughout the U.S. and Canada. These assets include renewable generation facilities, natural gas pipelines, and battery storage projects.
Okay, enough about NEE’s business. Let’s move on to the facts about the NEE dividend.
NEE Dividend Yield
NEE stock pays an annual forward dividend of $5.60 per share. Based on the recent stock price, the NEE dividend payout puts the NEE stock dividend yield at 2.5%.
Certainly, NextEra Energy is not one of the highest-yielding stocks. Especially in the utility sector.
In contrast, NEE dividend growth has been spectacular. So let’s check out historical NEE dividend growth next.
NEE Stock Dividend Growth
|1 Year||3 Years||5 Years||7 Years|
The historical trend of NEE dividend increases has been impressive. And for 2020, NEE announced its dividend would increase another 15.2%.
Consecutive Years Of NEE Dividend Increases
The 2020 NEE dividend increase marks the 26th consecutive year the NEE stock dividend has been increased by management.
This streak makes NEE a dividend aristocrat. Dividend aristocrats have increased their dividends annually for at least 25 years.
In the press release announcing the 2020 NEE dividend increase, management stated:
“This increase is consistent with the plan announced in 2018 of targeting 12 to 14 percent annual growth in dividends per share through at least 2020, off a 2017 base.”
Now, what about future NEE dividend growth? Let’s cover that next.
NEE Dividend Policy Statement
In that same press release announcing the 2020 NEE dividend increase, management continues…
“The board also approved an updated dividend policy for beyond 2020. It is expected to translate to a growth rate in dividends per share of roughly 10% per year through at least 2022. The growth is off the 2020 base expected to be $5.60 per share.”
Future NEE Dividend Growth
Longer-term, I expect annual dividend growth to be about 7-8%.
Even with the fast-growing renewable power segment, 10-12% NEE dividend growth will be hard to sustain, in my opinion.
We will use my NEE dividend growth forecast a little later. Let’s move on to business fundamentals.
NextEra Energy Revenue Trend
NEE revenue has grown on the strength of:
- Florida’s economy
- Renewable energy projects
- Targeted acquisitions
NEE Stock Earnings And Dividends Per Share
Note that 2017 and 2018 earnings have been normalized and reduced for comparability. They exclude certain one-time gains due to the impact of tax reform, investment gains, and disposition of assets.
Earnings per share have grown over the long run as the company invests in capital improvement projects. The cost of these projects plus a profit margin is then passed on to their customers. This is the essence of a regulated utility business model.
About 70% of NextEra Energy’s business is regulated. This provides for a great deal of predictability for future revenues, earnings, and cash flow.
Regulated utility stocks, like NextEra Energy, are some of the most stable stocks and most consistent stocks an investor can find.
NEE Dividend Payout Ratio
Management commented on its attractive dividend payout ratio when it announced the recent NEE dividend increase. This is what they said…
“With a 60% payout ratio at the end of 2019, well below the peer average of approximately 65%, and the continued strength of the earnings and operating cash flow growth at NextEra Energy, we remain well-positioned to support the dividend policy going forward.”
A higher dividend payout ratio is typical for a regulated utility. For example, Dominion’s dividend payout ratio exceeds 90%.
A lower payout ratio is better for the investor. It allows the company to maintain the dividend during difficult times. And in NEE’s case, increase it at a faster rate even when earnings growth slows.
NextEra Energy Credit Rating & Balance Sheet
Moody’s and S&P rate NEE long term bonds with investment-grade evaluations. Moody’s rating is Baa1. And S&P’s is BBB+.
Finally, the NEE’s debt to equity ratio stands at a very comfortable 1.0 to 1 times.
All in all, NEE’s balance sheet looks pretty solid as compared to other regulated utilities that carry debt to equity in the 1.2-1.5 to 1 range.
NEE Dividend Safety
The NEE stock dividend compares well here in terms of safety versus other regulated utilities. Supporting this assertion is the modest dividend payout ratio. And, strong balance sheet and credit ratings.
Also, the Utility Forecaster investment newsletter that follows dividends in the utility industry very closely gives the NEE dividend a safety score of 6 out of a possible 8.
I see little chance of a NEE dividend reduction in the foreseeable future.
NEE Stock Valuation
Let’s look at NEE stock value from several different angles.
NEE Dividend Discount Model
The NEE dividend discount model considers several of the factors discussed thus far. Specifically,
- Current dividend payment – $5.60 per share
- Estimated short term and long term dividend growth rate – 7.5%
- Desired annual return on investment – 10%
Using these assumptions, the NEE dividend discount model calculates the fair value of NEE stock to be $241 per share.
Morningstar Fair Value Estimate of NEE Stock
The investment research firm, Morningstar, estimates the fair value of NEE stock at $203 per share.
Utility Forecaster Buy Limit For NEE Stock
The Utility Forecaster investment newsletter has a target buy price at less than $259 per share.
NEE Stock Price To Earnings Ratio
Finally, the NEE stock price to projected 2020 earnings sits at about 27 times. This is quite expensive. Other regulated utility stocks that I cover trade in the high teens and low 20’s on a forward stock price to earnings basis.
But high-quality dividend growth stocks like NEE usually trade at a premium.
NEE Stock Valuation Conclusions
The NEE stock valuation metrics give us a range of views. But to me, they indicate that NEE stock is trading near its fair value.
For my personal buy target, I would like to buy more NEE stock at $225 or less. That would deliver a 2.5% NEE dividend yield on my purchase.
I prefer dividend yields in the 3-5% range, but I will make exceptions to this rule. So, I’m ready to add to my NEE stock on any stock price weakness.
NEE Stock & Dividend Analysis Wrap Up
NEE stock is one of my mid-size holdings in my dividend stock portfolio. As mentioned earlier, I wish I had bought more over the years.
Is NEE A Good Stock To Buy? Is NEE A Good Investment?
I answer yes to both questions. NEE is truly a high-quality dividend growth stock suitable for many investors’ portfolios. It has some excellent qualities like:
- Solid growth potential in renewable energy sources
- A modest but fast-growing dividend
- High marks for dividend safety
- Less investment risk as a regulated utility
The NEE stock price seems about right to me as of now. It is close to my personal range to add to my shares.
So, I like NEE stock at recent prices. And I’d back up the truck and load up at $200 per share or less.
In any case, I am happy to hold the shares I currently own for the long term.
Further Reading About Stable & Consistent Regulated Utility Stocks:
- WEC stock and dividend analysis
- Southern Company dividend stock analysis
- Duke Energy And its big dividend yield
- American Electric Power for dividend yield & growth
- One of the best ETFs for utility stock investing
And Some Other Articles About Dividends & Dividend Investing
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