Scott Levine, The Motley Fool
5 min read
In This Article:
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NextEra Energy is the largest regulated electric utility traded on American exchanges.
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The nature of its operations will appeal to conservative investors looking for resilient businesses.
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There are ample opportunities available for the company to pursue continued growth.
Forget the allure of companies promising groundbreaking innovations. While some of these may, in fact, provide handsome returns, the savviest investors know that the road to greater personal wealth is largely paved with tried-and-true stocks that can provide a firm foundation for one's portfolio -- stocks like utility powerhouse NextEra Energy (NYSE: NEE).
But it's not only the fact that NextEra Energy stock has outperformed the market for the past two decades that makes it an alluring attraction. Between management's steadfast commitment to rewarding shareholders -- its dividend currently offers a forward yield over 3% -- and the company's conservative business model, NextEra Energy will appeal to those looking to fortify their portfolios. Since there are so many things to like about the stock, it's worth asking if the company has the power to prosper over the long term.
One of the largest regulated electric utilities in North America, NextEra Energy primarily generates revenue from its two businesses: Florida Power and Light (FPL) and NextEra Energy Resources. With over six million customers, FPL mostly serves retail customers, while NextEra Energy Resources operates renewable energy assets throughout the United States.
The conservative nature of the company's business is demonstrated in two distinct ways. Because FPL is a regulated utility, NextEra Energy is guaranteed certain rates of return on its Sunshine State operations by the Florida Public Service Commission.
Similarly, NextEra Energy Resources also represents a low-risk business. From solar power to battery storage to wind power to nuclear power, NextEra Energy Resources has a diversified portfolio of clean energy assets totaling about 38 gigawatts (GW). The company inks long-term power-purchase agreements (PPAs) with customers in wholesale electricity markets to which it sells the energy, capacity, credits, and other products.
While the nature of NextEra Energy's business model should light up the eyes of investors who are seeking reliable companies, management's adept ability to generate profits will make them downright sparkle. Averaging an annual earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 51.8% from 2020 through 2024, NextEra Energy has consistently demonstrated superior profitability on an EBITDA margin basis over the past 10 years compared to its closest peers based on market capitalization: Southern Company and Duke Energy.
