NextEra Energy (NYSE: NEE) is one of the country's leaders in producing carbon-free electricity. It has a large and growing portfolio of wind and solar energy projects. On top of that, it operates several nuclear power plants.
These assets generate stable and growing income backed by government-regulated rate structures and long-term contracts. That has enabled NextEra Energy to deliver powerful dividend growth over the years as it has expanded its operations. It should have plenty of power to continue paying dividends in the future, especially given the recent resurgence in demand for nuclear energy.
Prepping for the power surge
Nuclear energy has been on the back burner for the past few decades because of higher costs and concerns about the potential for a meltdown. However, electricity demand is expected to surge in the coming years, powered by the growth in data centers, electric vehicles, and other catalysts. That's fueling a resurgence in nuclear energy.
Rival Constellation Energy recently capitalized on this surge in demand by signing a 20-year power purchase agreement with Microsoft to power the restart of the infamous Three Mile Island nuclear power plant. The tech titan agreed to buy all the power produced by Unit 1 of the facility, which Constellation Energy shut down five years ago over economic issues. Microsoft needs emissions-free energy to power its growing data center operations.
NextEra Energy is positioning its nuclear fleet to capitalize on the growing need for carbon-free energy. It recently won a license renewal for Turkey Point Nuclear Power Plant Units 3 and 4. That will enable those units to operate for another 20 years, extending their lives through 2052 and 2053, respectively. The facility currently produces enough carbon-free power to meet the needs of nearly 1 million homes and businesses. In renewing its operating license, NextEra Energy will extend the income produced by these units for another 20 years.
The company is also working to renew the license applications at two other facilities: the St. Lucie Nuclear Power Plant and the Point Beach Nuclear Power Plant. Securing those licenses would further extend the company's ability to produce low-carbon energy, and predictable cash flow, for decades to come.
Fortifying the base
One of the great things about nuclear energy is that it supplies baseload power. Since these facilities operate perpetually regardless of the sun or wind, they can provide the company with a solid base of earnings.
NextEra Energy's electric utility subsidiary (FPL) generates about 20% of its power from nuclear energy. Meanwhile, nuclear is about 7% of the generating capacity of its energy resources segment. With the company working to extend the life of its facilities, they'll be able to continue providing it with baseload power and a steady earnings base for decades to come.
Growing off its stable base
While nuclear energy provides a solid earnings base for NextEra Energy, renewables are its primary growth drivers. The company is investing heavily to build solar energy and battery storage capacity in Florida to support the growing power needs of FPL customers. Meanwhile, it's investing in wind, solar, battery storage, and electricity transmission projects through its energy resources segment to help decarbonize the country's power grid.
NextEra Energy's heavy investments should help power adjusted earnings-per-share growth at or near the top end of its 6% to 8% annual target range through 2027. Meanwhile, it expects to increase its dividend by around 10% annually through at least 2026, powered by its growing earnings and low dividend payout ratio. That would extend its magnificent record of dividend growth. It has increased its payout every year for about three decades while growing the dividend at a 10% compound annual rate over the last 10 years.
Supercharged total return potential
NextEra Energy has an excellent record of growing shareholder value. The utility has generated a double-digit annualized total return over the long term, powered by its growing lower carbon energy investments. With its nuclear energy backbone on track to continue providing baseload power and a stable earnings base for decades and more growth ahead for its renewables operations, NextEra Energy should have plenty of fuel to continue growing its dividend. That makes it a great stock to buy for those seeking to generate income and attractive total returns in the decades ahead.
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Matt DiLallo has positions in NextEra Energy. The Motley Fool has positions in and recommends Constellation Energy, Microsoft, and NextEra Energy. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
This Magnificent Dividend Stock Is Capitalizing on a Power Resurgence That Could Keep Its Payout Well Fueled for Decades to Come was originally published by The Motley Fool