NextEra or Dominion: Which Dividends Look Attractive?



Dividend profile

NextEra Energy’s (NEE) current dividend yield of 2.6% is lower than broader utilities’ (XLU) average yield of 3.0%. Dominion Energy (D) stock offers a yield of 4.8%, which is higher than its five-year average yield. NextEra Energy’s yield has been lower than peers’ average in the last five years.


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Dividend growth

NextEra Energy’s dividends grew 11% compounded annually in the last five years. Dominion Energy’s dividends increased more than 8% during this period. On average, utilities managed to increase their dividends ~4% during this period.

Dominion Energy and NextEra Energy will likely continue to see higher dividend growth for the next few years. NextEra Energy’s management expects its dividends to increase 13% per year for the next few years. Dominion Energy’s dividends are expected to increase 10% in 2019. Superior earnings growth is expected to drive the company’s dividend growth.

Duke Energy (DUK) and Southern Company (SO) increased their dividend per share 3.5%, respectively, compounded annually in the last five years. Utilities at large plan to increase their dividends 4%–6% in the next few years.

NextEra Energy had a payout ratio of 34%, while Dominion Energy (D) had a payout ratio of 88% in 2018. US utilities’ average payout ratio is close to ~70%. NextEra Energy’s notably lower payout ratio indicates the scope of increasing dividends.


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