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Here, Bob Ciura — editor of Sure Dividend — offers a countdown of his favorite dividend aristocrats. He begins with a top investment idea chosen from the utility sector.

The aristocrats are among the highest-quality dividend growth stocks in the entire market. They are an exclusive group of 58 stocks in the S&P 500 Index, with at least 25 consecutive years of annual dividend increases.

NextEra Energy (NEE) has increased its dividend for 28 years in a row. The stock has a market-beating 3.3% yield right now, making it an attractive pick for investors looking for a mix of dividend yield and growth.

Business Overview & Recent Events

NextEra Energy is an electric utility with two operating segments, Florida Power & Light (“FPL”) and NextEra Energy Resources (“NEER”). FPL is the largest U.S. electric utility by retail megawatt hour sales and customer numbers. The rate-regulated electric utility serves about 5.8 million customer accounts in Florida. NEER is the largest generator of wind and solar energy in the world.

NextEra Energy reported its Q4 and full-year 2023 financial results on Jan. 25, 2024. The utility continues to deliver stable results. For the quarter, the company reported revenues of $6.9 billion which was up 11.6% year-over-year. Adjusted earnings-per-share rose 2% year-over-year to $0.52. For the full year, the company generated revenues of $28.1 billion, up 34% and adjusted earnings-per-share up 9% from 2022.

Growth Prospects

As a utility, NextEra Energy can generate stable growth year after year. NextEra Energy's future growth will be comprised of customer additions, as well as rate increases. Renewable energy is also a growth catalyst for the company. Last year, FPL added about 1,200 MW of cost-effective rate base solar projects. NEER commissioned ~5.6 GW of renewable and storage projects in 2023. At the end of 2023, its backlog stood at ~20 GW.

Management initiates its 2024 adjusted EPS guidance range at $3.23-$3.43. We expect the company to grow its adjusted EPS by 7% per year over the next five years. Between 2014 and 2023, NextEra Energy grew its EPS by 9.5% a year. The company’s future growth will be generated through organic investments and acquisitions. Its renewable projects should drive the segment’s profits going forward.

Because of the regulations that are levied upon utilities, there are fewer competitive risks. As one of the biggest utilities in the United States, NextEra Energy also benefits from massive scale, which serves as a competitive advantage. Its focus on higher-growth renewable energy projects will allow NextEra Energy to continue growing faster than its peers.

Valuation & Expected Returns

Based on expected EPS of $3.33 for 2024, NextEra Energy stock trades with a P/E of 19.1. Our fair value estimate is a P/E of 21, meaning the stock appears to be undervalued. An expanding P/E ratio could boost annual returns by 1.9% over the next five years.

In addition, we expect 7% annual EPS growth going forward, while NextEra Energy stock has a 3.3% current dividend yield. Total returns are estimated to reach 12.2% per year over the next five years for the stock.

About the Author

Bob Ciura is currently senior vice president of Sure Dividend, and has been in that role since 2016. Previously, he was an independent equity analyst for a variety of investment services, including The Motley Fool and Seeking Alpha.

Mr. Ciura has over five years of experience in financial modeling and equity valuation. He has a Bachelor's degree in finance from DePaul University, and an MBA from the University of Notre Dame.

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