Will NextEra Energy's Key Indicators Light the Way?

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Part 4
Will NextEra Energy's Key Indicators Light the Way? PART 4 OF 6

NextEra Energy’s Dividend Profile: The Pros and Cons

NextEra Energy’s dividend

NextEra Energy (NEE), a $60-billion company, paid dividends of $0.98 per share in 1Q17—an increase of 13% from its dividend in 4Q16. Analysts expect NextEra Energy’s dividend to grow 12%–14% for the next few years.

Specifically, higher earnings growth could be driving NextEra Energy’ relatively higher dividend growth. NEE expects its earnings to grow 6%–8% through 2020, which is higher than the industry average.

NextEra Energy&#8217;s Dividend Profile: The Pros and Cons

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However, NextEra Energy is now trading at a dividend yield of 3%, which is lower than the industry average of 3.5%. Peers Duke Energy (DUK) and Southern Company (SO) are trading at yields of 4.1% and 4.5%, respectively, while the SPDR S&P 500 (SPY) (SPX-INDEX) has a yield of around 2%. NEE makes up 0.3% of SPY.

How NEE has managed such high dividend growth

NextEra Energy’s dividend growth rate of ~10% in the past five years has made it stand out in the industry. By comparison, utilities’ (XLU) dividends grew ~4% on average during the same period.

NextEra Energy’s heavy capital spending could be one of the main reasons behind its lower yield. While many utilities pay more than 75% of total earnings in dividends, NextEra Energy pays out only 53%. Its dividend payout ratio has historically been very low as compared to peers.

Notably, NextEra Energy’s expected above-average earnings growth seems achievable in the future, considering its continued strong performance over the past several years. Its capital spending plan and investments in renewables may continue to fuel and stabilize its earnings as well.

For more, check out Market Realist’s NextEra or Dominion: Which Has a Better Dividend Profile?

Continue to the next part for a look at NEE’s implied volatility.


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