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Why NextEra Energy Could Be a Sensible Dividend Option

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Nov. 20 2020, Updated 3:48 p.m. ET

NextEra Energy’s earnings growth prospects

As electricity consumption growth in the US has slowed in the last few years, utilities are expanding beyond their traditional utility operations. NextEra Energy’s (NEE) utility and non-utility segments have flourished in the past couple of years. Florida Power & Light, the principal regulated utility of NEE, has seen continued volume growth driven by strong customer base growth.

NextEra Energy is expected to have its customer base extended substantially due to the addition of Oncor, a leading electricity distribution company in Texas. NextEra Energy’s earnings growth rate is projected to accelerate in the longer term, as the utility business in Texas could offer a higher growth rate than in Florida, NextEra’s principal operating state.

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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 United States are operated by NextEra Energy. Whether the Clean Power Plan comes or not, renewables power generation is going to have brighter growth prospects considering its economic and environmental benefits.

NextEra’s stock rally is icing on the cake

Though NextEra Energy is currently yielding lower than utilities at large, its steep stock rally in the last five years has outperformed in terms of total returns. NEE’s yield is higher than that of broader markets (SPX-INDEX) of near 2%.

Utilities (XLU) could become less attractive if the Fed raises rates again. In fact, the Fed has an aggressive rate hike target in place for 2017. But, currently, any drastic rate increase is unlikely to significantly dent utilities.

To learn more about how utilities may be positioned in 2017, please read Hawkish Fed or Helpful Weather: What Will Drive Utilities in 2017?

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