We recently compiled a list of the 15 Best Stocks For Dividends. In this article, we are going to take a look at where NextEra Energy, Inc. (NYSE:NEE) stands against the other dividend stocks.
In 2023, dividend stocks underperformed compared to the overall market, which was driven largely by tech stocks. As we move into the latter half of 2024, dividend stocks have shown a similar performance trend in the first half of the year. The Dividend Aristocrats Index, which tracks the performance of companies with at least 25 consecutive years of dividend growth, is down by 0.17% year-to-date, compared with a nearly 18% gain in the broader market. Dividend stocks are declining for two main reasons. First, high interest rates are drawing investors towards bonds instead. Second, the current surge in AI technology is capturing investors’ focus on tech stocks. The tech-heavy NASDAQ has achieved its all-time high this year, surging by over 25% so far in 2024. That said, investors haven’t completely lost faith in dividend stocks. When all is said and done, successful investing is about playing the long game. Dividend stocks have consistently delivered, accounting for 36% of the market’s total return since 1927. Bank of America has also declared 2024 as ‘the year of dividends’.
In dividend investing, dividend growth stocks often take a lead over high-yield dividend stocks. Recent research indicates that companies providing consistent and sustainable dividends, without excessive payouts, have delivered the best long-term returns. Wellington Management conducted a study that categorized dividend-paying companies into five groups based on their payout levels. Since 1930, the research found that stocks with the highest dividend payouts generally performed similarly to those with high, but not the very highest, payouts, although they frequently traded places as the top performers over the decades.
Also read: 10 Very High Yield Dividend Stocks With Upside Potential
The dividend growth strategy has become so prominent over the years that many companies in the US are steadily increasing their payouts. In 2023, dividend payments reached an all-time high and have consistently increased over the years. Analysts are very optimistic about dividend payments for 2024, and recent projections indicate that the companies are on course to meet this new target record. One of the key reasons for this growth is that many companies, especially large technology firms, have abundant cash reserves and are rapidly increasing their free cash flows. This strong financial position enables them to continue rewarding their investors with higher dividend payments. According to the latest report by S&P Dow Jones Indices, companies in the index paid $153.4 billion in dividends in the second quarter of 2024, up from $151.6 billion from the previous quarter and up from $143.2 billion in the same period last year. The report also mentioned that there were 539 reported dividend increases, compared to 460 in the prior-year period, marking a 17.2% year-over-year rise. The total amount of these dividend increases reached $20.4 billion for the quarter, up from $9.8 billion in Q2 2023.
Dividend growth stocks are a hit with investors because they have rock-solid businesses, a steady cash flow, and strong balance sheets. These companies are top-notch for generating passive income. In this article, we will take a look at some of the best dividend stocks to buy.
Our Methodology:
To compile this list, we thoroughly reviewed reputable sources such as Forbes, Morningstar, Barron’s, and Business Insider. From their latest articles, we gathered the stocks they collectively favored. Additionally, we assessed the sentiment of hedge funds for each stock using Insider Monkey’s Q1 2024 database. The stocks are arranged in ascending order based on the number of hedge funds that hold stakes in these companies. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A wind turbine, its blades spinning to generate clean renewable energy.
NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 72
NextEra Energy, Inc. (NYSE:NEE) is a Florida-based renewable energy company that focuses on the generation of energy from solar and wind projects. The company gains from its business model, as the demand for clean energy has consistently increased over the past few decades. In response, the company has regularly invested in expanding its capacity and business. Analysts also believe that the company is well-positioned to capitalize on the growing demand for renewable energy from tech companies. These tech companies are striving to meet climate goals while expanding their electricity-intensive data centers. The stock is up by over 15% in 2024 so far.
ClearBridge Investments also mentioned this in its Q2 2024 investor letter. Here is what the firm has to say about NextEra Energy, Inc. (NYSE:NEE):
“AI-related momentum was a key driver of performance in the second quarter, lifting the enablers in technology as well as holdings like renewable power producer NextEra Energy, Inc. (NYSE:NEE) that supply the increasing energy needs of data centers. Parts of the market lacking an AI connection, like our medical device holdings, underperformed despite no change to fundamentals. We have managed through several similar momentum periods over our tenure and have delivered long-term results for shareholders by staying true to an approach that emphasizes diversification across three buckets of growth companies (select, stable and cyclical) and seeks to take advantage of attractive entry points into quality growth businesses.”
NextEra Energy, Inc. (NYSE:NEE) owns Florida Power & Light Company (FPL), the largest electric utility in the US. FPL provides clean, affordable, and reliable electricity to its 5.9 million customer accounts, serving over 12 million people across Florida. Roughly 70% of the company’s operations are tied to FPL, which recently saw its most significant quarterly customer growth in over 15 years, adding more than 100,000 new customers compared to the same period last year. According to analysts, the company is set for continued growth, with management aiming to more than double its capacity by the end of 2027. This will also help boost its dividend growth in the future. Expectations are high, with projections of around 10% annual growth in dividends per share through at least 2026.
At its recent investor meeting, NextEra Energy, Inc. (NYSE:NEE) informed shareholders that U.S. power demand is expected to rise by 38% over the next two decades. The company believes that a significant portion of this increased demand will be met through renewable energy and battery storage. Analysts projected capital expenditures of $65 billion to $70 billion from 2024 through 2027.
NextEra Energy, Inc. (NYSE:NEE) is a solid dividend growth stock, having raised its payouts at an annual average rate of nearly 11% over the past five years. In addition, it has been rewarding shareholders with growing dividends for the past 28 consecutive years, which makes NEE one of the best dividend stocks on our list. The company pays a quarterly dividend of $$0.515 per share and has a dividend yield of 2.90%, as of July 15.
The number of hedge funds tracked by Insider Monkey owning stakes in NextEra Energy, Inc. (NYSE:NEE) grew to 72 in Q1 2024, from 65 in the previous quarter. These stakes have a total value of more than $1.73 billion.
Overall NEE ranks 4th on our list of the best dividend stocks to buy. You can visit 15 Best Stocks For Dividends to see the other dividend stocks that are on hedge funds’ radar. While we acknowledge the potential of NEE as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than NEE but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.