As the world grapples with the urgent need to combat climate change, investments in renewable energy have surged to the forefront of the energy landscape. International agreements like the Paris Accord and domestic incentives, such as the U.S. Inflation Reduction Act, have galvanized efforts to expand solar, wind, and energy storage projects. Governments across the globe are implementing policies to support green energy transitions, seeking not only environmental benefits but also the economic potential of sustainable energy sources. The International Energy Agency (IEA) reports that global renewable capacity increased by 50% in 2023 compared to 2022, with the next five years expected to experience the fastest growth.
In this context, companies like NextEra Energy, Inc. (NEE) are ideally positioned to take advantage of the growing momentum behind renewable energy. But is NextEra, a dominant player in the green energy sector, the right stock to add to your portfolio?
NextEra’s Dominance in Renewable Energy
NextEra Energy is a trailblazer in the renewable energy space, leading the charge in both wind and solar power generation. Through its subsidiary, NextEra Energy Resources, the company has become the world’s largest producer of wind and solar energy. This extensive portfolio puts it in a prime position to benefit from increased demand for renewable power as more companies and countries prioritize sustainable energy solutions.
The company added more than 3,000 megawatts (MW) of new renewable energy and storage projects to its backlog in the second quarter of 2024, marking one of its best quarters to date. Notably, NextEra secured an agreement with Google to supply 860 MW of power to meet the tech giant’s data center demands, highlighting its ability to land high-profile contracts. These achievements underscore the company’s dominant role in the sector, where its scale, experience, and technological capabilities give it an edge over competitors.
Recent Developments Boost Growth Prospects
Recently, NextEra Energy Resources, the company’s clean energy arm, has continued its aggressive expansion. Not only did it add 1,455 MW of solar and 530 MW of battery storage projects to its pipeline, but it also strengthened its long-term growth prospects by securing major agreements. The company's backlog of renewables now stands at approximately 22.6 gigawatts, positioning it well to meet the growing demand for green energy.
Further, NextEra’s ability to secure government contracts for renewable projects adds another layer of security for investors. With strong governmental support for clean energy, NextEra is benefiting from subsidies, tax incentives, and favorable regulatory environments that reduce financial risks and enhance long-term profitability.
Stock Performance: A Strong Track Record with Room to Grow
Shares of NextEra Energy have gained 17% over the past three months and more than 30% over the past six months, backed by its strong financial performance. In the second quarter of 2024, the company reported adjusted earnings per share (EPS) of $0.96, reflecting a 9% increase year-over-year. This was driven by growth across both its utility business, Florida Power & Light (FPL), and its renewable energy projects.
While NextEra has faced some short-term pressure, including a dip in GAAP EPS to $0.79 due to factors like asset disposals, its overall trajectory remains positive. The company has committed to an annual dividend growth rate of approximately 10% through at least 2026, providing a consistent return for income-focused investors. At a forward dividend yield of around 2.4%, NextEra offers a solid combination of growth and income potential.
Moreover, NextEra’s forward guidance is promising. The company expects adjusted EPS to grow at a rate of 6% to 8% annually through 2027. This, combined with its strong balance sheet and market leadership, suggests that the stock has significant upside potential over the long term.
Why NextEra Energy Is a Buy
NextEra Energy’s impressive growth in the renewable sector, bolstered by recent contract wins and government incentives, makes it a compelling buy for long-term investors. The global demand for clean energy is only set to increase, driven by corporate sustainability goals and government mandates for carbon reduction. As one of the largest players in the market, NextEra is well-positioned to capitalize on this trend.
Moreover, NextEra’s dividend offers a steady income stream, which is attractive in uncertain economic times. For investors seeking exposure to the renewable energy boom, NextEra Energy presents a balanced opportunity: a company with a proven track record, solid financials, and a growth story that aligns with the future of global energy.
