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Buy This Utilities Stock for Dividends and Stability, Hold for Renewables Growth?

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NextEra Energy NEE is one of the biggest electric utilities in the U.S. and a renewable energy powerhouse. NextEra stock is trading at potentially attractive levels heading into its second quarter earnings release on Friday, July 22.

NextEra’s standing as a utility puts it in the so-called recession-proof basket alongside consumer staples and others. Plus, NEE’s renewable energy segment helps make it a longer-term growth play.

Boring Utility + Renewables Growth

NextEra Energy owns one of the biggest electric utilities in the county called Florida Power & Light Company. The massive, vertically integrated rate-regulated electric utility serves nearly 6 million customer accounts.

NEE’s growing portfolio also includes NextEra Energy Resources, LLC alongside other renewable entities that help make NextEra one of the largest producers of wind and solar energy in the U.S. and globally. To best showcase NextEra’s size, NEE is by far the largest holding in the Utilities Select Sector SPDR ETF XLU.

NextEra is a leader in battery storage as well, and it generates clean, emissions-free electricity from seven commercial nuclear power units. NextEra’s diverse energy portfolio exposes the firm to an array of growth opportunities. 

Nuclear, which currently accounts for 20% of U.S. electricity generation, is quickly regaining steam everywhere from China to France and the U.S. Wind and solar are projected to continue expanding their share of U.S. electricity generation.

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NextEra is coming off two slightly down years on the revenue front, but it’s due to bounce back in a big way. Current Zacks estimates call for its FY22 revenue to surge 20% to top its pre-covid levels in FY19, before surging 24% higher in 2023.

The energy standout’s adjusted 2022 earnings are projected to climb 12% to $2.86 per share and then pop 8% in FY23, on top of 10% EPS expansion in FY21. NextEra has consistently beaten our EPS estimates, and its upward earnings revisions help NEE land a Zacks Rank #2 (Buy) at the moment.  

Wrapping Up

NextEra stock has soared 344% in the past 10 years to blow away its industry’s 40% and the S&P 500’s 178%. NEE’s outperformance continued during the last five years.

The stock is down 16% from its peaks. But NEE is still up 3% over the trailing 12 months vs. the benchmark’s 17% slide.

On the valuation front, NEE trades at a 26% discount to its own highs and 8% below its five-year median at 26.5X forward earnings. And six of the eight brokerage recommendations Zacks has are “Strong Buys,” alongside two “Holds.”

NextEra lifted its 2022 dividend by 10% and it plans to raise its payout by 10% a year through at least 2024. NEE’s current dividend yield sits at 2.2% to top the S&P 500’s 1.5%.

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NextEra Energy, Inc. (NEE) : Free Stock Analysis Report
Utilities Select Sector SPDR ETF (XLU): ETF Research Reports
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