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NextEra Energy's Dividend Profile Is Smart despite Lower Yield

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Part 4
NextEra Energy's Dividend Profile Is Smart despite Lower Yield PART 4 OF 4

Which Factors Could Drive NextEra Energy’s Dividends?

NextEra Energy’s dividend outlook

As the interest rates in the US normalize, weakness in utilities might become apparent. US utilities’ (XLU) dividend yield premiums over the ten-year Treasury yield have reduced significantly from more than 200 basis points in mid-2016 to less than 100 basis points now.

On a bright side, top regulated utilities seem financially sound and their earnings appear to be stable in the long term. As a result, utilities might pay healthy dividends to shareholders.

Which Factors Could Drive NextEra Energy’s Dividends?

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Market performance

NextEra Energy stock outperformed its peers by a huge margin and rose more than 13% in the past year. In comparison, the Utilities Select Sector SPDR ETF (XLU) rose 9% and the SPDR S&P 500 ETF (SPY) (SPX-INDEX) rose 12% during the same period. Notably, the utility sector forms 3.2% of SPY.

NextEra Energy is a global leader in wind and solar power generation. Nearly 17% of installed wind capacity and 14% of installed solar capacity in the US are operated by NextEra Energy. NextEra Energy’s (NEE) utility and non-utility segments have flourished in the last few years. Florida Power & Light, NextEra Energy’s principal regulated utility, saw continued volume growth driven by strong customer base growth.

Read Hawkish Fed or Helpful Weather: What Will Drive Utilities in 2017? to learn more about how utilities might be positioned in 2017.

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