NextEra Energy(NYSE: NEE) has one of the better dividend track records in the energy sector. The utility has increased its payment every year for the past three decades. It has grown its dividend at a 10% compound annual rate over the past 20 years, which has helped power magnificent total returns of over 15% annually, compared with about 10% for the S&P 500.
The utility is in a strong position to continue growing briskly in the future. One factor powering that view is that NextEra Energy is working directly with a growing list of companies to help them meet their power needs.
A big driver of NextEra’s growth over the years has been its rapidly expanding energy resources segment. That business unit owns a growing portfolio of power-generating assets that supply electricity to other utilities and large-corporate customers under long-term, fixed-rate power purchase agreements. The company often develops renewable energy projects tailored to meet its customers’ needs.
For example, it recently partnered with refining giant Phillips 66(NYSE: PSX) to build a solar energy facility at its Rodeo Renewable Energy Complex. The NextEra Energy subsidiary will build a 30.2-megawatt facility on 88 acres of land owned by Phillips 66. NextEra will own and operate the facility, which will provide about half the power to meet the needs of Phillips 66’s recently completed renewable fuels facility. That will further lower the carbon intensity of the fuel it produces. Meanwhile, the project will provide NextEra Energy with stable cash flow as Phillips 66 pays its electricity bill.
That project is just the latest example of how NextEra Energy works with customers to meet their energy needs. It’s working with several companies on a much larger scale. For example, in June, the company signed a deal to develop 4.5 gigawatts (GW) of new solar and energy storage projects for fellow utility Entergy (NYSE: ETR). The partnership will enable Entergy to provide its customers with low-cost renewable energy. The five-year development agreement is on top of the more than 1.7 GW of projects NextEra Energy is already developing with Entergy.
NextEra also signed framework agreements with two Fortune 50 companies to potentially develop renewable and energy storage projects. It could build up to 10.5 GW of projects between now and 2030 for these two customers.
NextEra’s energy resource segment had secured over 24 GW of projects when it reported its third-quarter results in late October. Those projects didn’t include any of the 10.5 GW it had secured for the two Fortune 50 companies and only some of what it’s building for Entergy, so its project backlog is much bigger than that number indicates.
The secured projects and those under development support the company’s long-term growth expectations. It anticipates completing 36.5 GW to 46.5 GW of projects in the 2024 to 2027 timeframe, with its development pace expected to accelerate in the coming years, from 14.1-17.1 GW in 2024 and 2025 to 22.4-29.4 GW in 2026 and 2027. Those projects and investments to expand its regulated utility in Florida should drive 6% to 8% adjusted earnings-per-share growth through 2027, with growth likely at or near the upper end of that range. Meanwhile, NextEra anticipates dividend growth of around 10% per year through at least 2026, supported by its growing earnings and low dividend payout ratio.
Given its framework agreements with Entergy and the two Fortune 50 companies, NextEra Energy could continue growing at a healthy rate through the end of the decade. Adding to that view is the enormous amount of renewable energy the country will likely develop over the coming years to reduce emissions and support surging power demand from catalysts like AI data centers, electric vehicles, and the onshoring of manufacturing. Forecasters expect the country to deploy three times more renewable energy capacity over the next seven years than it has over the past seven years. As a leader in developing renewables, NextEra Energy is in an excellent position to capture an outsized share of this opportunity.
NextEra Energy has been a dividend growth juggernaut over the past few decades. That trend seems almost certain to continue, given all the growth it has ahead. The company continues to work with companies to support their electricity needs, which is providing it with a growing list of investment opportunities. It’s a great option for investors seeking an above-average dividend, and its 2.8% yield, compared with 1.2% for the S&P 500, should continue to grow rapidly in the future.
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Matt DiLallo has positions in NextEra Energy and Phillips 66. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool has a disclosure policy.
