Utility Sector Ideas

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NextEra Energy - >>> This high-powered utility rarely goes on sale


https://www.fool.com/investing/2022/03/26/3-dividend-aristocrats-that-get-more-attractive-as/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article


Matt DiLallo (NextEra Energy): NextEra Energy is one of the best value creators in the utility sector. It has significantly outperformed the S&P 500 and the S&P 500 Utility Index in the last three-, five-, 10-, and 15-year periods. Since 2006, the company has generated a more than 976% total return, vastly outpacing the S&P 500 (357% total return) and the utility index (nearly 242% total return).

The key to its success has been its consistent above-average growth. NextEra has grown its adjusted earnings per share at an 8.4% compound annual rate since 2005 while increasing its dividend at a 9.8% compound annual rate. Overall, NextEra has given its investors raises for 26 straight years.

Because of this success, NextEra Energy has historically traded at a premium valuation compared to other utility stocks. It currently sells for nearly 30 times its forward earnings, whereas its closest peers fetch less than 20 times forward earnings. Broad market sell-offs are among the few times when shares of NextEra trade at more attractive valuations and dividend yields.

That was the case earlier in the year. Shares tumbled more than 20% amid the market sell-off and the unexpected news that its longtime value-creating CEO was retiring. That decline pushed NextEra's forward PE ratio closer to 25 and its dividend yield above 2%. That buying opportunity didn't last long. NextEra has already clawed back more than half of its decline.

NextEra expects to continue growing its earnings and payouts at above-average rates. Because of that, investors should consider putting it near the top of their shopping lists for the next stock market sell-off, when they could scoop up shares of this high-quality utility at a more attractive price.

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