Most utilities aren't growth stocks. At best, they'll deliver mid-single-digit earnings growth, giving them the power to increase their dividends at a similar rate. Because of that, many growth-focused investors don't pay much attention to the sector.
However, NextEra Energy (NEE 1.87%) isn't your average utility stock. It recently put another charge in its dividend, boosting it by 10%. That has continued its surge over the past decade. It could have the power to continue growing its payout at a double-digit rate. Here's why dividend growth investors won't want to miss out on NextEra Energy's rapidly rising payout.
The surge continued
NextEra Energy recently paid its latest dividend. The quarterly rate surged nearly 10% to $0.515 per share. That's a high growth rate for any company, considering that the average member of the S&P 500 increased their dividend by 7% last year. However, it has been the norm for NextEra Energy in recent years. The utility has grown its payout at an 11% compound annual rate since 2013.
Two factors have helped power its surge. For starters, NextEra Energy has been growing its earnings at a strong rate. Its adjusted earnings per share have risen by about 10% annually over the past decade. On top of that, NextEra Energy has a very conservative financial profile. Its dividend payout ratio ended last year at 59%, well below the roughly 65% average of its peers. NextEra Energy also has a very strong balance sheet and one of the highest credit ratings in the utility sector.
Thanks to its continued surge, NextEra Energy now yields 3.2%, which is more than double the S&P 500's dividend yield. The company's surging earnings and dividends have helped fuel strong stock price appreciation of more than 10% annually over the last decade. Add in the dividend income, and NextEra Energy's total return is more than 13% annually. That has outpaced the S&P 500's roughly 12% annualized total return during that period.
The power to continue surging
NextEra Energy also recently extended its above-average targeted dividend growth outlook. The utility expects its payout to grow by roughly 10% per year through at least 2026. That's a two-year extension of its prior target of delivering at least 10% annual dividend growth through at least this year.
The same two factors fuel its extended view. Its currently low dividend payout ratio gives it lots of wiggle room. Meanwhile, it expects to continue growing its earnings at a solid rate. The company's current financial expectations are that its adjusted earnings per share will rise by 6% to 8% annually through at least 2024, with operating cash flow growing at or above its adjusted earnings growth rate. Further, the company's CEO has repeatedly stated, "Given the strength of both businesses, we will be disappointed if we are not able to deliver financial results at or near the top of our adjusted earnings per share expectations ranges in each year through 2026, while maintaining our strong balance sheet and credit ratings."
Meanwhile, the company's long-term growth outlook remains just as bright. Forecasters expect renewable energy demand to grow at a 13% compound annual rate through 2030. That should support continued strong earnings growth for NextEra's energy resources business. In addition, the company's electric utility in Florida (FPL) should continue benefiting from that state's abundant sunshine (supporting its investments in low-cost solar) and steadily growing population (driving customer growth and continued investments). These drivers should enable the company to grow its earnings at a healthy pace in the coming years. That could give it the fuel to continue delivering above-average dividend growth.
A powerful dividend growth stock
NextEra Energy's dividend continues to surge. That's helping power strong total returns for its investors. With more dividend growth ahead, investors won't want to miss out on this excellent income growth stock.
