Title: Unlocking Long-Term Wealth with NextEra Energy's Dividend Growth
Explore the opportunity to invest in NextEra Energy's shares (NEE -1.14%), offering a 2.7% yield. Alternatively, consider Dominion Energy, with its juicier 4.7% yield. Both companies shine as robust, well-managed utilities, but which one serves as the superior dividend pick? Quite possibly, the stock boasting the lesser yield might be your winner. Here's why.
What Does NextEra Energy Do?
NextEra Energy stands as one of the largest U.S. utility providers. Primarily, it oversees regulated electric utilities in Florida, with Florida Power & Light heading the pack. Florida's population influx has brought it years of new customers, necessitating ongoing investments to support growth. Regulators generally approve these expenditures, focusing on ensuring dependable power for customers.
NextEra Energy's portfolio extends beyond this sturdy foundation, however, boasting one of the world's most extensive collections of solar and wind power assets. The shift towards cleaner, renewable energy sources has bolstered this division's growth potential, with a long growth runway ahead as the world transitions to cleaner energy sources.
This winning combination of ventures supports NextEra’s 2.7% yield. However, it's the backbone for the company's impressive 30-year streak of annual dividend increases as well. Over the past decade, its average annualized dividend growth rate has exceeded 10%, a remarkable feat for a utility sector stock. NextEra Energy projects continuing 10% dividend hikes through at least 2026.
Is NextEra's Dividend Growth Worth the Price?
If you're hunting for maximum current income, Dominion Energy's higher yield might make it your ideal utility choice. However, consider that Dominion reduced its dividend a few years back and suspended future increases while focusing on debt reduction. While you gather a larger initial yield, you're sacrificing dividend growth.
So, how valuable has NextEra Energy's dividend growth been? In 2013, the highest-ever stock price (adjusted for a 4-for-1 stock split in 2020) was roughly $22.45. The corresponding dividend (again, adjusted for the stock split) was a quarterly $0.165 per share. The dividend yield came in at 2.9%, surpassing today's yield.
Fast forward to today. The stock price hovers around $75, and the quarterly dividend is $0.515 per share. The yield, around 2.7%, may be lower. But the stock's price increase more than compensates. The yield based on the 2013 price would come in at an impressive 9.1%, with the stock price skyrocketing nearly threefold as well.
Even simply holding onto shares would result in substantial capital gains and a significantly bolstered income stream.
Dividends May Not Always Be About Instant Gratification
Persistently fixating on current income and championing high-yield stocks isn't the only approach to dividend investing. NextEra Energy's impressive dividend growth history bears this out.
For the majority of dividend investors, it may make sense to incorporate both high-yield and dividend growth stocks within a portfolio. Staring back at the past decade or so proves the logic.
And if you're investing for future income needs, rather than today's demands, NextEra Energy could prove an invaluable addition to your portfolio, particularly if you reinvest those dividends and let them build upon themselves over time.
In terms of finance and investing, NextEra Energy's robust growth in renewable energy sources, such as solar and wind power, has contributed significantly to its impressive 30-year streak of annual dividend increases and a remarkably high average annualized dividend growth rate of over 10% during the past decade.
While Dominion Energy offers a juicier yield at the moment, NextEra Energy's focus on dividend growth has proven to be a beneficial long-term strategy for many dividend investors, with substantial capital gains and a significantly bolstered income stream over time.
