Last update on 2024-06-27

NextEra Energy (NEE) - Dividend Analysis (Final Score: 4/8)

In-depth dividend analysis of NextEra Energy (NEE), graded 4/8, covering payout ratios, growth rates, and stability over the past 20 years.

Short Analysis - Dividend Score: 4

We're running NextEra Energy (NEE) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

NextEra Energy (NEE) has been evaluated on 8 different criteria to assess its dividend policies and stability. It scored 4 out of 8, indicating a balance of both strengths and weaknesses. 1. The dividend yield for 2023 stands at 3.082%, close to but below the industry average of 3.12%. Though it's improved recently, the company has historically not focused primarily on high dividend yields. 2. The company’s average annual dividend growth rate over the last 20 years is 11.6853%, exceeding the 5% benchmark, which is a strong positive indicator. 3. The average payout ratio over 20 years is 60.17%, below the sustainable 65% threshold; however, there were some inconsistent high ratios in certain years. 4. Dividend coverage by earnings is generally favorable, with a trend of improvement over the years. 5. Dividend coverage by cash flow has been volatile, with several years showing insufficient coverage. 6. Dividends have demonstrated remarkable stability and consistent growth over the last 20 years. 7. The company has paid dividends for over 25 years, indicating long-term stability. 8. There have been no significant stock repurchases; rather, the number of shares outstanding has increased, indicating possible dilution.

Insights for Value Investors Seeking Stable Income

NextEra Energy (NEE) shows promise with a robust dividend growth rate, sustainable payout ratio, and stable dividend payments. However, investors should be cautious about the volatility in dividend coverage by cash flow and the increasing number of outstanding shares, which could lead to dilution. If you are looking for consistent, stable dividend returns, NEE is worth considering, but be mindful of the fluctuations in their cash coverage.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is the ratio of a company's annual dividend compared to its share price. A higher yield can indicate good returns for income-focused investors, but context is important.

The dividend yield of NextEra Energy (NEE) stands at 3.082% for 2023, slightly below the industry average of 3.12%. Over the past 20 years, NEE's dividend yield has fluctuated, generally peaking during financial downturns as observed in 2009 (3.8469%) and 2015 (5.9293%). On the other hand, the industry average dividend yield has also seen substantial fluctuations but appears to be higher in years of economic stress (e.g., 2008 with 3.93%). NextEra Energy's yield in recent years (2019: 2.0648%, 2020: 1.8146%, 2021: 1.6495%) was lower compared to the industry average, suggesting alternative growth trajectories. However, the yield improved to 3.082% in 2023, rendering it closer to the industry benchmark. This trend indicates a better income return for investors than in previous years. Despite not hitting the industry average, the improvement is a positive indicator, reflecting enhancements in shareholder returns. It hints that while NEE might have focused more on capital appreciation and growth in certain years, dividend yield considerations are being increasingly factored into their overall strategy.

Average annual Growth Rate higher than 5% in the last 20 years?

Examining the Dividend Growth Rate over the last 20 years to identify if it exceeds 5% is crucial to assess the consistency and reliability of a company's returns to its shareholders.

The Dividend Ratio dataset indicates substantial fluctuations, including years like 2015 with an extraordinarily high ratio of 112.4138% and 2017 with a significant negative ratio of -43.5057%. These anomalies can distort the interpretation of long-term dividend growth. However, the relevant criterion mentions analyzing the average growth rate over 20 years instead. The calculated Average Dividend Ratio is 11.6853%, which comfortably exceeds the 5% benchmark. This implies that, on average, NextEra Energy has managed a healthy and consistent rate of dividend returns over the specified period. Although the anomalies mentioned should be investigated further, the overall trend appears positive, indicating robust and growing returns for shareholders. Therefore, considering the historical data, this trend can be deemed favorable for the given criteria.

Average annual Payout Ratio lower than 65% in the last 20 years?

Assessing the average payout ratio, especially over 20 years, helps investors determine the consistency and sustainability of a company's dividend payments.

Over the past 20 years, NextEra Energy (NEE) has maintained an average payout ratio of approximately 60.17%. This average is well below the 65% threshold, indicating solid earnings retention. Generally, a payout ratio lower than 65% is considered sustainable as it ensures that a sufficiently large portion of earnings is retained for reinvestment and potential future growth. Although NEE had significantly high payout ratios in 2015, 2016, 2019, 2020, and 2021, these anomalies do not appear to undermine its longer-term stability, which is essential for dividend investors. Therefore, this trend can be considered good as the average figure remains comfortably within a sustainable range.

Dividends Well Covered by Earnings?

Dividends well covered by earnings signifies a company's ability to sustain dividend payments from its profits, indicating financial health.

Analyzing NextEra Energy's earning per share (EPS) versus dividend per share (DPS) from 2003 to 2023, the coverage ratio has varied widely. For instance, in 2012, the EPS was 1.1268 while the DPS was 0.6, leading to a coverage ratio of 53.25%. However, recent years show an improved EPS of 3.6079 in 2023 compared to a DPS of 1.872, making the coverage 52.52%. Historically, when coverage dips below 50%, it can signal potential unsustainability, but NEE's increasing trend and higher EPS in recent years suggest a stronger position. The overall rising trend in both EPS and dividend coverage, especially beyond 2014, indicates a mostly positive financial trajectory with minor fluctuations through the period. Thus, investors may view this trend as favorable.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow indicates that the company generates sufficient free cash flow to cover its dividend payments. It is important to consider because it reflects the company's ability to sustain or increase dividends without jeopardizing its financial stability.

Analyzing the provided data on the coverage of NextEra Energy (NEE) dividends through free cash flow from 2003 to 2023, several trends emerge. A ratio above 1 indicates that the company generates more free cash flow than the amount of dividends paid, thereby comfortably covering its dividend. A ratio below 1 suggests the company did not generate enough free cash flow to cover the dividend, potentially unsustainable if this trend persists. From 2003 to 2023, this ratio shows considerable volatility. In years like 2023 (2.157), 2018 (3.603), 2017 (1.905), there seems to be more than adequate coverage, which is positive for shareholders looking for reliable dividends. Conversely, years such as 2021 (-10.92), 2012 (-1.14), and 2019 (-0.82) exhibit significant shortfalls, indicating free cash flow insufficiency to cover dividends, a potentially alarming sign for investors. This inconsistency in coverage ratio may suggest fluctuating performance based on operational or external factors influencing cash flow but doesn't necessarily prescribe immediate risk given the company's strong years. However, sustained negative coverage can affect investor confidence and long-term dividend reliability.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years, where the dividend per share did not drop by more than 20%, is crucial for income-seeking investors.

NextEra Energy (NEE) has demonstrated remarkable stability in its dividend payments over the past 20 years. The dividend per share has shown a consistent upward trend from $0.30 in 2003 to $1.872 in 2023 without any drop exceeding 20%. This consistency reassures income-seeking investors who prioritize a stable and growing income stream. The highest annual increase occurred in 2015, and even in instances of minor corrections, the company quickly resumed its growth trajectory. Such stability in dividends is a sign of robust financial health and prudent management, making NEE an attractive option for dividend-focused investors.

Dividends Paid for Over 25 Years?

Analyzing dividends paid for over 25 years helps assess a company's long-term stability and commitment to shareholder returns.

NextEra Energy (NEE) has consistently paid dividends over the past 25 years, with amounts increasing from $0.25 per share in 1998 to $1.872 per share in 2023. Such consistency and growth in dividend payments are indicative of the company's strong financial health and its dedication to rewarding shareholders. This long-term trend is generally viewed positively, reinforcing the company's stability and profitability.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases over the past 20 years involve a consistent reduction in the number of outstanding shares, which can signal strong management confidence, efficient capital allocation, and value return to shareholders.

Upon reviewing the data for NextEra Energy (NEE) over the last 20 years, it is observed that there have been no significant stock repurchases. In fact, the number of shares outstanding has increased steadily from 1.43 billion in 2003 to approximately 2.03 billion in 2023. The average repurchase over this period is notably negative, at 1.78%, indicating an average dilution rather than accretion. This trend may be considered unfavorable from a shareholder value perspective, as continuous dilution often signals that the company is issuing new shares to raise capital, which might be indicative of significant capital expenditures or attempts to manage debt rather than returning value directly to shareholders.