NextEra Energy(NYSE: NEE) has grown at a blistering rate for a utility. It has generated 9% compound annual adjusted earnings-per-share growth over the last decade. That has given it the power to increase its dividend at a 10% compound annual rate. NextEra has raised its payout every year for three decades, one of the longest streaks in the sector. The company's rapidly rising earnings and dividend have generated supercharged total returns over the last 20 years (over 1,700% compared to roughly 600% for the S&P 500 and more than 500% for its utility peers).
The company expects to continue delivering supercharged growth in the coming years. Because of that, it remains a great dividend stock to buy and hold for the long haul.
Extending the outlook
NextEra Energy has a lot of visibility into its future growth prospects. The electric utility and renewable energy producer generatesvery stable cash flow backed by long-term contracts and government-regulated rate structures. Meanwhile, its utility operates in Florida, which benefits from abundant sunshine (great for producing solar energy) and above-average population growth. On top of that, its energy resources segment, a leader in producing and developing renewable energy, is capitalizing on accelerating demand.
Those factors drove the company's view that it should be able to grow its adjusted earnings by 6% to 8% annually through 2026 despite headwinds from higher interest rates. It recently extended that outlook by one year, now projecting to deliver 6% to 8% annual adjusted earnings-per-share growth through at least 2027. NextEra's management team has said it would be disappointed if it didn't deliver growth at or near that target range. The company also expects to raise its dividend by around 10% annually through 2026.
NextEra Energy has already secured a lot of that growth. The company's energy resources segment has a backlog of 21.5 gigawatts (GW) of renewables and storage projects underway. That's a massive number of projects, considering that the segment currently has 34 GW of operating capacity. On top of that, it has another 300 GW in its development pipeline. The company recently agreed to accelerate the development of up to 4.5 GW of projects over the next five years in a deal with fellow utility Entergy.
A powerful new growth driver is emerging
The utility could grow even faster over the longer term. It expects U.S. power demand to rise 40% over the next two decades. That's a significant acceleration from the 9% increase in demand over the last 20 years. Several factors powerthatsupercharged growth view, including technology companies' surging electricity demand for data centers needed for artificial intelligence, growing domestic manufacturing, and electric vehicles.
Technology companies need a staggering amount of energy to power data centers that run artificial intelligence (AI) applications. That's leading them to secure long-term contracts to supply power to their facilities. For example, Microsoft recently signed a five-year deal with Brookfield Renewable to develop a staggering 10.5 GW of new capacity. That's almost eight times bigger than the largest power contract ever signed by a corporation.
They're also seeking NextEra's help in finding locations to support their power needs. The company's CEO, John Ketchum, recently stated that companies have asked it for locations to support 5 GW of power. He pointed out that this is the size of the power needs of a city like Miami.
The expected surge in power demand could enable NextEra and other utilities to restart older nuclear power plants. For example, NextEra shut down its Duane Arnold nuclear power plant in Iowa in 2020 after its biggest customer didn't renew its contract. The company could restart the 600-megawatt reactor to help power data centers.
These drivers could power above-average earnings growth for the company for years to come. That could give it the fuel to continue increasing its dividend at a powerful pace.
The supercharged returns should continue
NextEra Energy has grown much faster than U.S. power demand over the last 20 years due to its focus on Florida and renewables. That strategy should continue paying dividends in the future, especially given the expected acceleration in electricity demand. It should enable the company to continue growing its earnings and dividend at above-average rates, which should give it the fuel to generate strong total returns. That income and upside potential make NextEra Energy a great stock to buy and hold for the long haul.
Should you invest $1,000 in NextEra Energy right now?
Before you buy stock in NextEra Energy, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and NextEra Energy wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $808,105!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of June 10, 2024
Matt DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners, and NextEra Energy. The Motley Fool has positions in and recommends Brookfield Renewable, Microsoft, and NextEra Energy. The Motley Fool recommends Brookfield Renewable Partners and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
