NextEra Energy vs. Constellation Energy: Which Utility Stock Is Built for This Market?

Demand for electricity is on the rise, with cleaner power alternatives increasingly favored. Utilities are no longer boring investments; there are very real growth opportunities ahead across the entire power sector. Which companies are best situated to take advantage? Constellation Energy (NASDAQ: CEG) and NextEra Energy (NYSE: NEE) are two you should consider, but they have vastly different business profiles.

Constellation Energy isn't a regulated utility

Constellation Energy owns a large fleet of nuclear power plants and, via a recent acquisition, also produces electricity with natural gas. That's half the story, as both are cleaner alternatives compared to coal. The other half of the story is that Constellation Energy isn't regulated, allowing it to sell power on the open market. Although it uses long-term contracts, the prices it can charge tend to rise and fall with demand. If demand is high, as many expect it will be for the foreseeable future, Constellation Energy will be well-positioned for years to come.

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Investors could easily justify buying Constellation for either its nuclear power exposure or because of its non-regulated business model. That said, it is a more aggressive option in the utility sector. For example, the stock is up 40% over the past year, but down 20% from its 52-week high. So it isn't cheap, but it also isn't as expensive as it was.

NextEra Energy is a hybrid option

NextEra Energy is more appropriate for income investors, as the dividend has been increased annually for decades. The yield is well above the market at 2.6%, which is also well above the 0.5% yield offered by Constellation Energy. NextEra Energy's business is also much less risky, given that the foundation is its large regulated electric utility operations in Florida. Florida has long benefited from in-migration, giving NextEra a slow and steady growth profile.

That said, NextEra Energy also has a growth angle. In addition to its regulated assets, it has built one of the world's largest solar and wind power businesses. Clean energy is an increasingly in-demand power option. The combination of regulated utility and clean energy giant is expected to support dividend growth of 6% a year for the next few years.

Both are attractive, but one will likely suit you better

Both Constellation Energy and NextEra Energy are attractive businesses. More aggressive types will likely find Constellation more to their liking, while conservative investors focused on income will probably prefer NextEra Energy. That said, both are fairly well-positioned to benefit from the growing demand for electricity.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Constellation Energy and NextEra Energy. The Motley Fool has a disclosure policy.