NextEra Energy (NYSE:NEE) Will Pay A Larger Dividend Than Last Year At $0.4675

The board of NextEra Energy, Inc. (NYSE:NEE) has announced that it will be increasing its dividend by 10% on the 15th of March to $0.4675, up from last year's comparable payment of $0.425. Despite this raise, the dividend yield of 2.2% is only a modest boost to shareholder returns.

View our latest analysis for NextEra Energy

NextEra Energy's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, NextEra Energy's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. This is a pretty unsustainable practice, and could be risky if continued for the long term.

The next year is set to see EPS grow by 75.0%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 53% which brings it into quite a comfortable range.

NextEra Energy Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the dividend has gone from $0.60 total annually to $1.70. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth May Be Hard To Come By

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. In the last five years, NextEra Energy's earnings per share has shrunk at approximately 6.2% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

NextEra Energy's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think NextEra Energy's payments are rock solid. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for NextEra Energy you should be aware of, and 1 of them can't be ignored. Is NextEra Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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