NextEra Energy’s (NEE - Free Report) board of directors announced a 12% hike in quarterly dividend to $1.40 per share from the previous rate of $1.25. The new quarterly dividend will be paid on Mar 16, 2020 to its shareholders of record as of Feb 28, 2020. The current annual dividend yield of the company is 2.01%.
History & Future Dividend Hike
NextEra’s strong operations allow it to generate stable cash flow, which enables the company to fund capital projects and pay dividend to its shareholders. The 2020 dividend increase would mark the 16th consecutive year of hike in annual dividend rate by NextEra.
The board of directors also approved an updated dividend policy for beyond 2020. The expected growth in annual dividend rate is roughly 10% per year through at least 2022, off a 2020 base, which is projected at $5.60 per share.
Is This Annual Dividend Hike Sustainable?
NextEra has well-chalked plans to invest in the range of $50-$55 billion in different projects, which were extended from the last year through 2022. These investments will be directed to modernize and strengthen the company’s existing infrastructure, thereby enabling it to serve the expanding customer base more effectively. The regulated investment will help the company generate adequate cash flow, which in turn will be utilized by NextEra to strengthen existing operations and increase its shareholders’ value.
The company is well poised to gain from positive economic fundamentals in its service territories, which will help it achieve the targeted compound annual earnings growth rate of 6-8% through 2021 from a 2018 base of $7.70.
In addition to registering growth from organic assets, the company is also making strategic acquisitions, which prove to be accretive to earnings. The acquisition of Florida assets is soon going to be accretive and add 15-20 cents to earnings in 2020 and 2021, respectively.
The above-mentioned factors will support the company to deliver steady financial performance over the long term and allow management to carry out shareholder-friendly moves.
Transition in Energy Space
Due to their nature of operation, utility companies generally deliver stable earnings performance that enables them to pay regular dividend to its shareholders. This allows utilities to reward its shareholders, generate funds needed to add more clean sources to their generation portfolio and gradually move away from coal to produce electricity.
NextEra, given regular investment, aims at cutting carbon emissions in its power generation by 67% in 2025 from 2005 levels. In addition, utilities like Duke Energy Corporation (DUK - Free Report) , Xcel Energy (XEL - Free Report) and The Southern Company (SO - Free Report) are investing considerably to lower carbon emissions, and add more renewable and clean sources to their generation portfolio.
In the past six months, shares of NextEra have gained 27.2% compared with the industry's 14.1% rally.
NextEra Energy currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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