NextEra Energy(NYSE: NEE) has an outstanding record of paying dividends. The utility has increased its payout every year for the past three decades and has grown its dividend at a robust 11% compound annual rate over the past decade.
A big factor powering the utility's fast-growing payout is its focus on investing in renewable energy. Strong demand for clean energy should enable the company to continue growing its dividend at a strong clip in the future.
It recently agreed to accelerate the development of several solar energy and storage projects, which should supercharge its already strong growth profile. With its dividend yield currently double the S&P 500's (2.7% versus 1.3%), it can provide investors with a high-powered passive income stream.
A powerful partnership
NextEra Energy's energy resource segment recently agreed to a joint development agreement with fellow utility Entergy(NYSE: ETR). The deal will enable NextEra Energy to accelerate the development of up to 4.5 gigawatts (GW) of new solar generation and storage projects over the next five years. That's a meaningful amount of capacity, considering NextEra's energy resource segment currently has 30.6 GW of operating capacity.
The joint development agreement will enable Entergy to make significant progress toward its goal of growing its renewable energy portfolio. It will also enable the utility to provide its customers with more low-cost, carbon-free energy in the coming years. It's an extension of the long-standing partnership between the companies, wherein NextEra is already building more than 1.7 GW of renewable energy with Entergy.
Meanwhile, the deal will enable NextEra Energy to pull forward some of its development projects with the help of Entergy. Their deal will help facilitate the development of several more solar and energy storage projects over the next five years, giving it the power to grow even faster.
Enhancing an already strong outlook
NextEra Energy already has a very strong growth outlook. The utility expects to grow its earnings per share by 6% to 8% annually through at least 2026, with operating cash flow likely rising at or above that range. The company has repeatedly said it would be disappointed if it didn't deliver earnings growth at or near the top end of its range. That optimism and its conservative financial profile support the company's plan to grow its dividend by around 10% per year through at least 2026.
The company's robust backlog of renewable energy projects is a big factor powering its growth outlook. NextEra's energy resources segment is adding new projects to its backlog at a record pace. The company added nearly 2.8 GW of projects in the first quarter -- the second-best quarter in its history for new renewables and storage origination. The period was its best ever for solar and storage project originations. Those new projects boosted its backlog to 21.5 GWs of new capacity it expects to complete over the next few years.
Meanwhile, its longer-term opportunity is even more robust. The company has an industry-leading pipeline consisting of a staggering 300 GWs of projects in various stages of development. While it won't build all those projects, it has historically captured 20% of the market for new renewable and storage originations. The Entergy deal will enable NextEra to convert more of its pipeline into secured capital projects.
Forecasters estimate that the U.S. will build 375 GW to 450 GW of new renewable energy projects from 2024 through 2030. That's nearly double the capacity built over the last 30 years (235 GW). Annual capacity development is on pace to grow at a 13% compound annual rate through 2030. This forecast suggests NextEra Energy should continue growing briskly. Given its scale and expertise, it will likely secure a meaningful portion of this opportunity.
The powerful dividend growth should continue
NextEra Energy has done a magnificent job growing its dividend over the years. It's in an excellent position to continue increasing its payout briskly, thanks in part to the expected enhancement from its Entergy partnership. That makes NextEra a great stock to buy for those seeking a rapidly rising passive income stream powered by renewable energy.
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Matt DiLallo has positions in NextEra Energy. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool has a disclosure policy.
