Over the past 10 years NextEra Energy, Inc. (NYSE:NEE) has been paying dividends to shareholders. The company is currently worth US$83b, and now yields roughly 2.5%. Should it have a place in your portfolio? Let’s take a look at NextEra Energy in more detail.
5 checks you should do on a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share risen in the past couple of years?
- Does earnings amply cover its dividend payments?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does NextEra Energy pass our checks?
The current trailing twelve-month payout ratio for the stock is 24%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect NEE’s payout to increase to 61% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.9%. However, EPS is forecasted to fall to $9.97 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. NEE has increased its DPS from $1.78 to $4.44 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes NEE a true dividend rockstar.
Compared to its peers, NextEra Energy has a yield of 2.5%, which is on the low-side for Electric Utilities stocks.
With these dividend metrics in mind, I definitely rank NextEra Energy as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three important aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for NEE’s future growth? Take a look at our free research report of analyst consensus for NEE’s outlook.
- Historical Performance: What has NEE’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.