Zap! That sound you just heard was DTA’s Income Builder Portfolio getting another major jolt of Divvy Dollars!
Many Dividend Growth Investing practitioners own high-quality regulated electric utilities for the reliable, sustainable and rising income those companies produce.
And so on Tuesday, March 13, the world’s largest utility – NextEra Energy (NEE) – became part of the IBP.
I executed a market order for 6 shares at $154.54 apiece. Including the $4.95 brokerage commission, the total paid was $932.19.
Because Daily Trade Alert is allocating $2,000 per month for two buys, I will have about $1,068 available for our next purchase in two weeks.
Near the top of the list: a dividend that has grown for 24 consecutive years.
NEE recently raised its quarterly payout 13% to $1.11 per share.
So come June 15, NEE will pay the IBP $6.66.
As mandated by the portfolio’s Business Plan, all dividends get reinvested right back into the companies from whence they came – a no-cost process informally called “dripping.” After buying NEE, I instructed the brokerage to “turn on the drip.”
If NEE is still trading at about $155 in mid-June, the $6.66 the IBP receives will buy .043 new shares. Then, three months later, the Income Builder Portfolio would get dividends based upon the new share total of 6.043 – making the September payment $6.71. In turn, that will buy another fraction of a share.
Make it rain Divvy Dollars, baby! That’s how an enduring, successful income stream gets built.
As the metrics I presented in a recent article about utilities on my IBP watch list showed, NextEra Energy is either fairly valued or slightly overvalued.
NEE’s forward price/earnings ratio of around 20 is about the same as its 5-year average P/E, its price is just a few bucks higher than Morningstar’s “Fair Value Estimate” of $150, and its dividend yield of 2.9% is only a tick better than its 5-year average yield of 2.8%.
Credit Suisse has an “outperform” rating on NEE, with a 12-month target price of $172 (highlighted below).
CFRA’s “Fair Value Rank” (5 – most undervalued) and “Fair Value Calculation” ($185.64) suggest NextEra is a decent buy here.
The folks at Value Line really like NEE. They believe that tax reform will be a “boon” to the company, and they predict that a gas-fired plant scheduled for completion next year will bring a rate increase from the state of Florida.
Value Line recently upgraded NEE’s Safety and Financial Strength scores (green circle below), while saying the Relative P/E (blue) is attractive and the price has room to run (red). (A Relative P/E under 1 means a company’s P/E ratio is lower than the average of stocks VL’s analyzes.)
The FAST Graphs valuation tool, which uses “blended P/E ratio,” indicates that NEE is expensive relative to its Normal P/E (red circles below). The blue circled area shows NEE’s price has moved well ahead of its Normal P/E.
Wrapping Things Up
I can understand why value-conscious investors who are protective of their cash and leery of a bull market now in its 10th year might be hesitant to buy any company that is not a verifiable bargain.
However, NextEra Energy is of such high quality, and the Income Builder Portfolio is such a long-range exercise, that I had no qualms at all about initiating a small position Tuesday on the IBP’s behalf.
Obviously, I believe NextEra is a fine company, and I own it myself (it makes up just under 1% of my personal portfolio). Nevertheless, investors should conduct their own due diligence before buying any stock.
— Mike Nadel