NextEra and Dominion: Which Offers Better Dividend Prospects?
Higher dividend growth
Utility giants NextEra Energy (NEE) and Dominion Resources (D) are among the top large-cap utilities in the US. Both have a unique set of characteristics. One important aspect that distinguishes both of them from peers is their dividend growth.
While utilities at large are poised to grow their dividends 4%–6%, NextEra Energy and Dominion Resources are expected to offer dividend growth that’s more than double the industry average in the next few years.
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Higher earnings growth seems achievable
Higher earnings growth might drive NextEra Energy and Dominion Resources’ relatively higher dividend growth. Both companies expect their earnings to grow 6%–8% through 2020, which is higher than the industry average. Analysts expect NextEra Energy’s dividends to grow 12%–14%, while Dominion Resources’ management expects its dividends to rise more than 8% annually through 2020.
Dominion Resources stock rose 5%, while NextEra Energy managed to gain nearly 10% in the past year. In this series, we’ll mainly compare NextEra Energy and Dominion Resources’ dividend profiles. We’ll see which utility offers a better investment proposition.
Dominion Resources’ Questar acquisition and NextEra Energy’s Oncor acquisition are expected to improve the respective parent’s earnings significantly in the next few years. Both companies have diversified product portfolios that reduce their dependence on traditional electric and gas operations—positive for long-term earnings growth.
Both of these utilities (XLU) generate a significant portion of their total revenues from regulated operations. The rest of the revenues come from long-term power purchase agreements.