Why NextEra Energy (NEE) is a Top Dividend Stock for Your Portfolio

·2 min read

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

NextEra Energy in Focus

NextEra Energy (NEE) is headquartered in Juno Beach, and is in the Utilities sector. The stock has seen a price change of -9.86% since the start of the year. Currently paying a dividend of $0.47 per share, the company has a dividend yield of 2.48%. In comparison, the Utility - Electric Power industry's yield is 3.21%, while the S&P 500's yield is 1.74%.

In terms of dividend growth, the company's current annualized dividend of $1.87 is up 10% from last year. In the past five-year period, NextEra Energy has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.75%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, NextEra's payout ratio is 58%, which means it paid out 58% of its trailing 12-month EPS as dividend.

NEE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2023 is $3.12 per share, representing a year-over-year earnings growth rate of 7.59%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, NEE is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

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