NextEra Energy (NYSE: NEE) is a twofer. First, it is a strong regulated utility that powers 4.6 million customers in Florida, a state that has significant and consistent power needs.
Also remember that Florida is one of the fastest growing states in the US, so more people and businesses mean a strong growth track. Second, it operates on the unregulated side with its subsidiary NextEra Energy Resources (NEER).
NEE’s Growing Renewable Energy Division
This division focuses on selling wholesale power that’s primarily generated by wind and solar, with some natural gas operations thrown in. NEER is a big deal because Florida is a great place to generate both wind and solar.
While there isn’t as much incentive to convert because of environmental laws at this point, the fact is that renewables are actually reaching price parity with coal and not having to operate and maintain old power plants is an attractive option.
From NEER’s point of view, generating power from solar farms and wind farms is much cheaper to maintain (and that means higher margins) in the long term, than using power plants to sell excess energy.
This wasn’t always the case. But the initial costs of developing renewable energy resources are now coming to fruition.
Growth Ahead for NEE Stock
On the regulated utility side, NEE is also doing well. According to a recent study, Florida is the fifth fastest growing state in the U.S. That is a very bullish sign of the potential growth that NEE has ahead of itsel
Given the fact that much of its service area is in the southern half of the state, where the population is densest, this also allows for better distribution efficiencies. It’s easier to pump power into a big city than it is to send it into lightly populated rural areas where you don’t get the bang for the buck in transmission and distribution operations.
All these bullish trends are reinforced by NEE stock’s performance.
NEE stock is up 24% over the past year, and 20% year to date. Add to that a respectable and reliable nearly 2.4% dividend and you have a very attractive stock that is not only in a hot sector, but is well positioned for whatever the market throws its way.
The Q2 earnings NEE released yesterday bear this out. Not only did NEE outperform analysts’ expectations but it also had strong guidance for the rest of the year.
Remember, the low interest rate environment is great for capital intensive stocks like utilities because it means their borrowing costs are lower. That means they can retire higher cost debt and replace it with lower cost debt. It also means that any more debt they take on is at a lower cost and this can help boost operating margins.
And even if the market swoons, good utility stocks are one of the safest havens around.
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Source: Investor Place