Most companies are satisfied to produce a good product at a good price. NextEra Energy (NEE) does this, but it doesn't stop there. It tries to produce gas and electricity for the cheapest price possible. It tries to make its power generating resources among the most "green" in the industry. It tries to provide some of the best growth in the industry with some of the best management in the industry. It succeeds in all of these aims. Furthermore, it pays a 3.54% dividend, with a consistent history of good dividend growth.
NextEra Energy had a 2011 fuel mix of 56% natural gas, 22% nuclear, 13% wind, 6% coal, 1% oil, 1% hydro, and 0.3% solar. It had among the lowest emissions rates in the industry for sulfur dioxide, nitrous oxide, and carbon dioxide. It has a cumulative wind power CAGR over the last 10 years of 19.3%. It is not stopping there. It has approximately 1,300 MW of new wind power, approximately 600 MW of new Canadian wind power, and 900 MW of new solar power in the works. All are expected to go into service by 2016.
NextEra Energy, though regulated, presents great earnings and dividends. It has an adjusted EPS CAGR of 6.3% over the last 10 years. It has a dividends per share CAGR of 7.0% over the last 10 years. It has a total shareholder return of 208.7% for the last 10 years. This compares very favorably to the total shareholder return of the S&P 500 of 128.6% during the same time. While doing all of the above it has maintained great rates for its customers. Its Florida Power & Light subsidiary had the lowest bill per 1,000 kWhs in the state of Florida. This bill was 25% below the national average. That's good management. In confirmation of the company's figures, the average analysts' five-year EPS growth estimate per annum is 5.34%. This is close to the previous 10 years CAGR of 6.3% for adjusted earnings. It means you should be able to invest in NEE with confidence and safety.
Are there any risks? It's a regulated utility -- of course there are. In fact, Florida Power & Light has a summary request for a $516.5 million base revenue increase effective Jan. 2, 2013. It also has a $173.9 million step increase coinciding with COD of the Cape Canaveral modernization. If the PSC turned down either of these requests, it would hurt NextEra Energy significantly. Given that Florida Power & Light provides power at one of the lowest rates in the nation and at the lowest rate in Florida, it seems unlikely that the requests will be turned down. Keep in mind that NEE has maintained a 12.6% CAGR in energy resources capacity over the last 10 years, while maintaining the above mentioned profitability and low customer charges characteristics. This is impressive, and it indicates a likelihood that the company can continue to outperform.
A couple of other challenges will present themselves in the future. Some merchant net sales prices may be hurt as hedges roll off, if the price of natural gas does not climb. Another problems is that some production tax credits for wind projects will roll off in the next few years. Still, the wind energy should be relatively efficient, and natural gas prices will eventually go up. The secular growth trend in energy is too strong worldwide and in the U.S. Plus, management has already shown its metal in guiding the company forward. There are really not any large obstacles in the future profitability path of this company. Also, the estimated capex for both future wind and solar projects is approximately $3 billion for each through 2014. The company would not be doing this if it foresaw any huge risks to the company's profitability from these projects. Furthermore, NextEra Energy is well hedged through 2014.
The two-year chart of NextEra Energy provides some technical direction to this trade.
The slow stochastic sub chart shows that NextEra Energy is currently overbought. The main chart shows that NextEra Energy is much further above its 200-day SMA than it has been at any time in the last two years. The 50-day SMA is also far above the 200-day SMA. All these things tell you that NextEra Energy is at the top of its price range currently.
However, the P/E of only 13.39 is very reasonable for a good dividend paying utility. This still compares extremely well to two other top dividend paying utilities: Southern Company (SO), with a P/E of 19.39 and a dividend of 4.08%, and Consolidated Edison (ED), with a P/E of 18.28 and a dividend of 3.84%. All this means that NextEra Energy may or may not experience a pullback in the near future. As overbought as it is, it could well continue to appreciate in price. Averaging in is a good strategy for this strong, stable, good dividend paying utility.
Note: Much of the fundamental fiscal data that did not come from NextEra Energy came from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NEE over the next 72 hours.