NextEra Energy (NYSE:NEE) stock is up 22.3% year to date, and with Joe Biden assuming the presidency, all signs point to the energy giant continuing on its path of dominance. The next president has presented an ambitious $2 trillion proposal, focused on creating a nationwide emissions-free electricity grid in just 15 years.
Naturally, green energy stocks like Albemarle (NYSE:ALB), First Solar (NASDAQ:FSLR), and Tesla (NASDAQ:TSLA) are on a bull run after the Democratic ticket prevailed in the race for the White House. However, renewable energy is a secular trend.
Specific administrations can slow or accelerate the momentum, but the long-term growth story remains intact. That’s why not a day goes by when you don’t hear about IPOs or reverse mergers through special purpose acquisition companies, also known as blank checks, that are looking to play this trend.
However, size and scale matter. The debuting companies do not have a lot of capital, but markets have irrationally pushed valuations higher based on pure speculation. NextEra has projects in the pipeline to produce 15 gigawatts of electricity, enough for 11 million homes. With a $142.07 billion market cap, it’s staring down Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX), a couple of the largest energy conglomerates in the world. Any way you slice it, the alternate energy giant is an excellent pick for your portfolio.
Changing of the Guard
In early October, Exxon was unseated as the most valuable energy company in America. And to the surprise of many, it was not because of Chevron, its long-standing oil and gas competitor. Instead, NextEra Energy knocked did the honors; a company with the world’s largest collection of wind and solar farms.
Although the reign was brief, it wasn’t a one-off. Several alternative energy companies like Enel Americas (NYSE:ENIA) and Orsted (OTCMKTS:DNNGY) are now valued more than comparable oil majors. However, NextEra’s position is not the result of circumstance. Yes, secular tailwinds helped. But the management deserves credit for cultivating an excellent strategy for prospective growth.
Early on, it prioritized constructing or acquiring clean-power plants. NextEra’s strategy also focuses on taking advantage of state and federal incentives as much as possible. According to its own filings, federal tax credits contributed $3.1 billion over the last 10 years. Taking advantage of credits is one thing, but keeping them there is another thing altogether.
This brings us to a controversial aspect of NextEra’s strategy. It is the seventh-biggest lobbyist among 156 utilities. Last year, it spent $4.1 million on lobbying federal lawmakers and the Trump administration.
Fundamentally Strong
NextEra Energy’s reported third-quarter adjusted earnings and adjusted EPS of $1.311 billion and $2.66 per share, respectively. On a GAAP basis, net income came in at $1.229 billion, or $2.50 per share, compared to $879 million, or $1.81 per share, in the year-ago period.
Earnings guidance for 2021 was raised to $2.47 a share from $2.42. The operating margin remains strong at 21.43% versus the sector average of 10.19%. Operating cash flow rose 39.7% sequentially.
From a dividend standpoint as well, NEE stock stands a class apart. An 11.52% five-year dividend growth rate, and a 61.18% payout ratio is very healthy. The yield is a little less than 2%, while the average S&P 500 utility yields about 3%. While that may not strike you as impressive, it’s important to note here that the dividend looks to be sustainable. NextEra is also one of the few companies that have increased their dividend year over year for the past 25 years, no small feat.
NEE Stock Is a Winner
NextEra will continue to do well in a world that is increasingly tilting towards renewables. Shares are trading at a substantial discount from their 52-week high of $302.95 per share.
Bearish investors will point out that NEE relies heavily on fossil fuels. And while it’s true that more than half of NEE’s energy generation capacity comes from non-eco-friendly sources, including coal, natural gas, and oil, it’s a net positive. A hybrid approach will ensure the transition to renewables is smooth.
Once the pandemic is over, traditional fossil fuels will come back. Moreover, most of NEE’s renewable electricity generation focuses on wind, the cheapest electricity generation source, even without subsidies.
Due to all these factors, I believe NEE stock offers great value at current rates.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan is a contributing author for InvestorPlace.com and numerous other financial sites. A former data journalist at S&P Global Market Intelligence, he’s passionate about helping retail investors make more informed decisions regarding their portfolio.
