Earn Passive Income for Years With This Dividend Aristocrat

Dividend Aristocrats are great stocks to own if you are looking for an ever-increasing passive income stream. These S&P 500 the partners have demonstrated the sustainability of their dividends by increasing them for more than 25 consecutive years. While past success is no guarantee of future results, many Dividend Aristocrats have the financial strength to continue to increase their dividends in the future.

One seemingly unstoppable dividend aristocrat it is NextEra Energy (SINGLE -1.42%). The clean energy-focused utility expects to continue to grow its dividend at a healthy pace for years to come, buoyed by its renewable energy investments. Here’s a closer look at this excellent passive income action.

Powerful dividend growth

Some dividend aristocrats will give their investors a symbolic raise each year to keep their streak going. While that’s better than nothing, it may not be enough to offset inflation. On the other hand, NextEra Energy has historically provided investors with annual dividend increases that outpace inflation.

For 2022, NextEra Energy increased its dividend payout by approximately 10%, well above last year’s red-hot inflation rate. That continued a long streak of healthy dividend increases by the company. Since 2006, NextEra Energy has increased its payment at a compound annual rate of 9.8%. That’s well above the rate of most other utilities and companies in the S&P 500. It has helped contribute to the company’s significant outperformance compared to those two groups over that time period.

The fuel to continue growing the dividend

NextEra Energy expects to continue to grow its dividend at a higher-than-average rate for years to come. The utility has set a goal of raising it by about 10% per share through at least 2024. That’s an impressive pace for a company that offers an above-average dividend yield (currently 1.9% vs. 1.6% of the S&P 500). Several factors help enhance that perspective.

It all starts with the firm financial foundation of the company. The utility generates stable profits supported by consistent demand for electricity and gas that it distributes to customers under government-regulated rate structures or long-term fixed-rate contracts. In the meantime, the company pays out a conservative amount of its earnings through the dividend. Their dividend payout ratio it was 60% at the end of 2021, below the peer group average of 65%. That gives you a greater margin of safety and allows you to retain more cash to finance expansion. NextEra Energy also has a strong credit rating, giving you greater access to lower-cost capital.

Further enhancing the company’s financial flexibility is its strategic relationship with NextEra Energy Partners (NEP -0.10%). NextEra formed that entity to acquire and operate clean energy infrastructure and uses the company to recycle capital. NextEra sells revenue-generating clean energy infrastructure to the association, giving it funds to invest in new development. In the meantime, these deals give NextEra Energy Partners the cash flow to increase its high-yield dividend.

The company’s sources of capital will allow it to invest $85 billion to $95 billion between 2022 and 2025 in expanding its Florida-based utility and energy resources segment. The company anticipates that these investments will increase its adjusted earnings per share by a compound annual growth rate of approximately 10% at the high end of its guidance ranges through 2025. That is a potential acceleration of the 8% compound annual growth rate. .4% on the adjusted earnings per share it has delivered since 2006. Meanwhile, the company sees operating cash flow growth at or above that level. That supports his plan to increase the dividend at around a 10% annual rate for the next few years.

In the meantime, the company has a lot more growth ahead of it. It launched its ambitious Real Zero by 2022 strategy to eliminate carbon emissions from its operations by 2045. That plan would see the company’s Florida-based utility install hundreds of millions of solar panels, add massive storage capacity of batteries and replace natural gas with renewable natural gas. gasoline and green hydrogen. Meanwhile, its energy resources segment aims to lead the decarbonization of the US economy. The $4 trillion market opportunity would see the company continue to develop electricity transmission, wind, solar and battery storage capacity. These massive investments should help drive steady earnings growth, likely giving NextEra Energy the power to continue to grow its dividend for years to come.

The Dividend Aristocrat seems unstoppable

NextEra Energy offers an above-average return that expects to grow at a significant rate over the next few years. In the meantime, you should have plenty of power to keep increasing that payout in the future. That makes it a great dividend stock for passive income seekers as it should be able to provide them with an income stream that beats inflation.

Matthew DiLallo has positions in NextEra Energy and NextEra Energy Partners. The Motley Fool has positions and recommends NextEra Energy. The Motley Fool has a disclosure policy.

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