This Utility Has Raised Its Dividend for 31 Straight Years. Here's the 1 Number I'd Check Before Buying.
Key Points
NextEra's dividend appears sustainable based on its projected earnings.
Strong earnings growth could help maintain a manageable payout ratio.
NextEra's long-term outlook supports continued dividend increases.
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NextEra Energy (NYSE: NEE) has increased its dividend for 31 consecutive years, making it one of the more dependable dividend-growth stocks in the utility sector. And there's no indication that the company will slow this down anytime soon.
NextEra expects to grow its dividend by approximately 10% annually through 2026, followed by annual increases of roughly 6% in 2027 and 2028. But before buying shares, there's one number you should check: the dividend payout ratio.
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Can NextEra afford its dividend?
A payout ratio measures how much of a company's earnings go toward dividend payments. A lower ratio generally gives a company more room to increase its dividend while reinvesting in the business.
NextEra's annualized dividend is approximately $2.49 per share. Against its 2026 adjusted earnings guidance of $3.92 to $4.02 per share, that translates to a forward payout ratio of roughly 62% to 64%. That's a manageable level for a regulated utility, particularly one with NextEra's growth prospects.
That said, NextEra also faces substantial capital spending requirements as electricity demand rises and utilities invest in new generation, transmission, and infrastructure. So a higher payout ratio could eventually limit dividend growth if earnings fail to keep pace with those investments.
Strategic advantages
NextEra has two advantages: a long history of dividend increases and a business positioned to benefit from rising electricity demand. Management is targeting adjusted earnings-per-share growth of at least 8% annually through 2035. So if NextEra delivers that growth while maintaining a payout ratio near current levels, I feel confident that its dividend could continue increasing well into 2036.
Should you buy stock in NextEra Energy right now?
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Jeff Siegel 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.
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