If you’re looking to create lifetime income by buying dividend stocks, you might overlook this NextEra Energy (NYSE: NO) because the return is “only” 3%. That’s about average for a utility, and there are plenty of higher-return choices to consider, both inside and outside the utility sector. But there is one important factor to consider that could change your mind. NextEra’s dividend has been growing at an exceptionally fast pace and it looks like it will continue to grow. This is why this dividend stock can provide you with a lifetime of income.
NextEra is actually two companies in one. The core of the company is being regulated utility company operation. This is basically a slow and steady base. Like all regulated utilities, NextEra’s Florida-based utilities have been granted a monopoly in the markets they serve. It must then have capital investment plans and interest rate increases approved by the government. In most cases, this is not an approach that leads to rapid growth.
That said, the state of Florida has benefited from immigration for decades, causing its population to grow rapidly. More customers means more revenue and also means that a higher level of investment is needed to meet demand. So while the regulated side of NextEra Energy’s business is the slower growing side, it still has an advantage over other utilities.
The other major activity of NextEra Energy is its operations clean energy operation. This company is built on long-term contracts and is therefore a very reliable cash generator. The demand for clean energy is high and the company can quickly expand these activities. For example, management expects as much as 46.5 gigawatts of renewable energy to be installed by 2027, up from the current 36 gigawatts. In other words, this company will likely double in size within a few years.
If you buy NextEra Energy now, you’ll receive a 3% dividend yield, which, as mentioned, is about average in the utility sector. But NextEra Energy differs from the average utility in one very important way: dividend growth. Over the past ten years, the dividend has grown at an annualized rate of approximately 10% per year. That’s huge in the utilities sector, where 5% growth is considered very good.
NextEra Energy expects the dividend to grow 10% per year at least until 2026. Unless there are major headwinds, history suggests the dividend can continue to grow at that pace beyond 2026. Given all the dividend increases, the dividend yield over time on purchase price with NextEra Energy becomes an important metric to consider.