10 Reasons to Buy and Hold This High-Yield Utility Stock Forever

Key Points

• NextEra Energy is a regulated utility.

• The company is also a clean energy giant.

• NextEra Energy's unique portfolio of businesses sets it up for strong long-term dividend growth.

• 10 stocks we like better than NextEra Energy ›

NextEra Energy (NYSE: NEE) hails from the utility sector, but it's anything but a boring dividend stock. And yet, if you like dividends, you'll likely find NextEra Energy an attractive investment. And if you like utilities, it can help supercharge what might otherwise be a relatively sleepy list of holdings.

Here are 10 reasons you might want to buy and hold this unique utility stock forever.

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1. NextEra Energy serves an attractive market

The core of NextEra Energy is its regulated utility operation. That is largely made up of Florida Power & Light, the largest utility in the Sunshine State. Florida has long benefited from in migration, which naturally tilts the foundation of NextEra Energy's business toward slow and steady growth.

Image source: Getty Images.

2. NextEra is building on its foundation

On top of the core utility operation, NextEra Energy has built one of the world's largest providers of solar and wind power. So this "boring" utility is positioned well to grow along with the world's increasing demand for cleaner power alternatives.

3. It has a powerful combo for dividend growth

One big benefit of mixing a strong and reliable core operation with a growth-oriented business has been dividend growth. Over the past decade, NextEra Energy increased its payouts at a rapid 10% pace, on an annualized basis. Half of that would be good for a utility. And 10% payout growth would be good for just about any company. This is a stock that dividend growth investors could easily fall in love with.

4. It has grown its dividend for way more than a decade

But don't think that 10 years of dividend growth is all you get here. NextEra Energy's dividend-hiking streak goes back 31 years. In other words, this utility has been growing its dividend reliably for over three decades, which should make more conservative income investors pretty happy, too.

NEE data by YCharts.

5. NextEra's dividend offers an attractive yield

The only problem an income investor might have is that NextEra Energy's yield isn't the highest in the utility sector. But at 3.2%, it is above the sector's 2.8% average. So while you can certainly find higher yields, you aren't getting shortchanged on yield if you buy NextEra Energy.

6. NextEra is poised for more clean energy growth

Political winds shift over time, and right now, federal government support for clean energy investment is waning in the United States. But the transition from carbon fuels to renewable options like solar and wind is not a short-term trend. Notably, NextEra currently has a 28-gigawatt pipeline of projects to work on, as well as another 300 gigawatts of potential opportunities after those projects are done. Energy transitions take decades, and there is likely to be a material runway for growth ahead for NextEra Energy.

7. More dividend growth is ahead

That annualized dividend growth rate of 10% over the past decade is the past. What about the future? Management is forecasting 10% dividend growth in 2025 and 2026, backed by expected adjusted earnings growth of 6% to 8%. The earnings growth being projected, however, goes out to 2027. And both of those company projections are based on the strong growth being delivered in clean energy. In other words, it seems likely that NextEra Energy's dividend-hiking streak will continue for at least the next several years, if not longer.

8. It maintains a solid financial foundation

NextEra Energy's regulated utility operations provide a strong foundation for the business. But that's not the only way in which the company's foundation can be viewed. The entire business is backed by an investment-grade rated balance sheet. So this is a strong business that is also financially strong.

9. It maintains a reasonable payout ratio

In addition to having a rock-solid balance sheet, NextEra Energy also has a very reasonable dividend payout ratio of 66%. That may sound high to some investors. However, utilities tend to have higher payout ratios in general, and NextEra's ratio leaves it with plenty of room for adversity and for continued growth. A key factor to keep in mind is that its cash flows tend to be highly reliable, given that a significant portion of its business is effectively a monopoly in the regions where it operates.

10. Overall energy demand is growing in NextEra markets

The final reason to appreciate this stock relates to the big-picture view of the world that NextEra Energy operates within. Between 2000 and 2020, U.S. power demand grew by a total of 9%. Between 2020 and 2040, demand is projected to increase by 55%. That step change in demand growth will support not just the company's clean energy ambitions but also its regulated operations. So NextEra Energy is a fast-growing business in a sector that appears to be headed for a sustained growth spurt.

Don't wait -- NextEra doesn't go on sale very often

The political shift in Washington has investors worried about clean energy stocks. NextEra Energy's share price has been hit by that negativity, which has pushed its yield up to attractive levels. Historically, the stock has been afforded a premium valuation by investors, which has kept its yield below the industry average. So if you're thinking long term, now would be a good time to consider adding NextEra Energy to your dividend portfolio.

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