Market traders know NextEra Energy (NYSE:NEE) as a giant in the utilities sector. Yet, few of them expect much electricity from NEE stock. Utilities stocks are generally considered a slow-but-steady-wins-the-race type of investment.
There’s nothing wrong with that approach, but let’s not underestimate the profit potential of NEE stock. The outsized short-term gains from technology stocks seems to have clouded some traders’ judgment. They’re ignoring the excellent reward-to-risk profile offered by a utilities stand-by like NextEra Energy.
And even among well-established utilities names, NextEra’s performance in 2020 truly stands out. For a nice balance of long-term growth and safety, NEE stock is absolutely worth considering.
A Closer Look at NEE Stock
As of Aug. 17, NEE stock is faring better than a number of its peers in the utilities sector. We can measure this through 2020 year-to-date percentage returns.
For NEE stock it’s 17.35%, while it’s -9.29% for Duke Energy (NYSE:DUK), -15.50% for Southern (NYSE:SO) and -17.67% for Consolidated Edison (NYSE:ED). Clearly NextEra is marching to the beat of a different drummer, and that’s a good thing.
NextEra offers a forward annual dividend yield of 2%. Granted, that won’t make you wealthy overnight. Nonetheless, this company is demonstrating respect for its loyal shareholders by maintaining solid dividend payouts even during a global pandemic.
Momentum-focused traders will appreciate the trajectory of NEE stock, which is definitely to the upside. After bottoming out at $174.80 in March, NEE powered its way back over $280 this summer.
Thus, the bears and short sellers have completely relinquished control of NEE stock. It’s a great time to be a NextEra bull, collecting dividends and watching the share price take out previous highs.
Better Than Bonds
For retirees and other risk-averse long-term investors, government bonds were once a reliable income source. The U.S. Federal Reserve’s recent actions, however, have made bonds unappealing.
On Aug. 17, the annual yield on the 10-year U.S Treasury bond was a paltry 0.67%. That yield doesn’t even keep up with the rate of dollar inflation. Somewhere, somehow, there must be something better than this.
Utilities stocks are known for being relatively recession-resistant investments. Retirees sometimes use them as an alternative to bonds. And in a time when U.S. government bonds yield so little, utilities stocks are looking quite attractive.
Throughout the recession stemming from the novel coronavirus pandemic, NEE stock has posted impressive gains while many of NextEra’s peers have recorded losses. Besides, NEE’s dividend yield is greater than what the 10-year Treasury bond has to offer. It’s just a better deal, all around.
More Growth Ahead
In an unfavorable interest-rate environment, NextEra’s value proposition is undeniable. But you don’t have to think of NEE as just a safety stock. The company is highly profitable and there’s plenty of room for growth here.
Through the year 2022, NextEra projects that the company’s earnings per share will increase at a compound annual rate (CAGR) of 6% to 8%. Also through 2020, NextEra expects its dividend payouts to increase at the rate of 10% per year.
It’s also encouraging to know that NextEra remains a leader even among utilities giants. In fact, according to the number of customers, NextEra is North America’s largest electrical utility company.
NextEra’s sheer size should help the company withstand recessionary headwinds and maintain its steady growth rate. All in all, NEE stock truly is the type of asset that you can just buy and hold for years or even decades.
The Bottom Line
The strength of NEE stock during these challenging times is proof positive that NextEra Energy is a utilities-sector standout.
Better than government bonds, NEE shares offer reliable yield and growth prospects that investors can count on.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.