The Biggest Renewable Energy Company in the World
It was just over a year ago when we had boots on the ground in Azerbaijan scouting tech startups for our piece on the Top 12 Disruptive Tech Startups in the Caucasus. Of the three countries featured in our piece, Azerbaijan is the only one afflicted with “the curse of oil.” It’s the same curse cast upon Saudi Arabia, a country that’s become over-reliant on “black gold” for income without considering the money tree might stop bearing fruit. All those rich young Saudis buying $450 bottles of Jack Daniels on the black market may actually have to start looking for jobs.
Today, both countries are scrambling to shore up their tech sectors in hopes of diversifying their sources of income. It’s probably something on the minds of executives at Exxon Mobil (XOM), a company that’s lost more than half its value this year. Their yield now exceeds 10%, and that’s not a good thing.
We’re long Exxon as part of our dividend growth investing strategy, and we’re seriously concerned about their ability to keep increasing the dividend in coming years. (This is a company that’s been increasing their dividend now for 37 years straight.) To offset the pain inflicted by this dog of a dividend stock, we’ve been basking in the glory of a stock that’s the biggest renewable energy firm in the world, The Biggest Electric Utility Company in the World, and now lays claim to being the first renewable energy firm to surpass Exxon Mobil in value. That stock is NextEra Energy (NEE).
As of today’s market close:
- Exxon Mobil Market Cap: $141 billion
- NextEra Energy Market Cap: $145 billion
One of these ladies aged more gracefully than the other.
The Biggest Renewable Energy Company in the World
They say you should never fall in love with a stock, but that’s easier said than done where you own an electric utility company that behaves like a growth stock, all while spewing forth a delicious dividend that’s increased for 26 years straight. It’s all we can do not to be smitten by her ravishing beauty, her voluptuous curves, that way she glances at us out of the corner of her eye while slowly licking her lips. See what we mean?
The nice thing about being a dividend growth investor is that you don’t care about what the stock price does, just as long as you keep getting a yearly paycheck as time goes on. Still, you can’t help but marvel at how gracefully she ages. Just look at these 10-year returns.
- Exxon Mobil: -49%
- Invesco Solar ETF: -15%
- The NASDAQ Index: +353%
- NextEra Energy: +427%
NextEra Energy is one of the oldest holdings in our Nanalyze Tech Stock Portfolio, and we’re not planning on selling it for a very long time. We’re not just telling you that to point out our Nostradamus-like ability to pick stock winners in hopes that you’ll become a Nanalyze Premium subscriber. We’re pointing out the fact that you can do good by doing good. Investing in renewable energy does pay off, and will continue to, as unsubsidized wind and solar have now become the cheapest way to generate electricity.
Checking in With NextEra Energy
It’s been more than two years since we last checked in on NextEra Energy, so today we’re going to look at some recent events of interest. We’ll also talk about what investors ought to do who missed the boat here. Let’s start with the rumored acquisition of Duke Energy.
Why Did NextEra Want to Buy Duke?
“NextEra Energy Made Takeover Approach to Duke Energy,” was the title of a WSJ article which pretty much summed up everything in the first sentence, “Duke rebuffed the approach but NextEra is still interested in pursuing a deal, people familiar with the matter said.” That’s literally all we know at this point.
NextEra’s move to buy Duke Energy would have certainly raised some regulatory eyebrows considering the biggest and third-biggest electric utility companies in the United States would have become one.
In acquiring Duke Energy, NextEra would have picked up 7.2 million retail electric customers across six states and 1.6 natural gas customers across five states. While nothing may ultimately come of this, it’s great to think that NextEra has some lofty ambitions, something they clearly spell out in their latest investor deck.
The Latest Investor Deck
Whenever we check in with a stock, we always pull up the latest investor deck to find out what new mantras the company may be reciting that hint at a change in strategy. NextEra’s investor presentations look like an Intro to Computer Science deck you might have encountered in college during the 1980s. And we love it. It means they’re busy focusing on the important stuff, like their long-term vision to become the largest, most profitable clean energy provider in the world.
Per the latest NEE investor deck, the first half of this year looks great with earnings-per-share up 10% from last year. They acquired GridLiance, a company that owns three FERC- regulated transmission utilities spanning six states. It’s all part of their plan to create America’s leading competitive transmission company. That reminds us of one thing we don’t like about NextEra Energy. We’d like her to be a bit more adventurous.
Nearly all of NextEra’s revenues come from the great land of ‘Murica. There are 193 other countries out there that could provide some geographic revenue diversification. Not much else to glean from the investor deck, so let’s move on to talk about their coming stock split.
NextEra Energy’s Stock Split
It’s a rookie mistake to think that a $100 stock is more expensive than a $10 stock. Still, pundits play on this ignorance instead of providing guidance, often touting lists like “best energy stocks under $10.” Those investors who haven’t figured that out yet will be stoked to know that this month NextEra plans to split their stock. Each shareholder of record on Oct. 19, 2020, will receive three additional shares of common stock for each then-held share, to be distributed on October 26, 2020.
- NextEra Energy Before Stock Split: 1 Share = $297
- NextEra Energy After Stock Split: 4 shares = $297 (4 X $74.25)
All of you who believe that the company is just giving you three more shares out of the kindness of their hearts should buy the hell out of NEE before Oct 19, 2020. The rest of us simply realize that nothing really happened here. Incredibly, the reason most companies split their stocks is because investors think they’re cheaper. From Investopedia:
Basically, companies choose to split their shares so they can lower the trading price of their stock to a range deemed comfortable by most investors and increase the liquidity of the shares.
No wonder aliens won’t talk to us.
To Buy or Not to Buy
It’s acknowledged by the financial community that stock splits result in abnormal returns, something academics try to explain in a series of rather boring papers. Essentially, the reason share prices increase post-split is because more investors come on board when shares are “cheaper,” and it’s a moot point. Whether or not the stock split affects NextEra’s share price in any way is irrelevant if you plan to hold the world’s largest renewable energy company in your portfolio for the long term.
One of the most important principles we can relay to you is the importance of dollar-cost averaging. Now that there are no brokerage fees, you simply buy a small fraction of your target position at a fixed date each month. Draw a line in the sand and start today by buying one share. On October 26th, you’ll have four shares. Buy one share each month for the next 12 months and you’ll have a $1,000 position in NextEra Energy. For those of you with baller incomes, apply whatever multiple to this equation you see fit.
We’ve painted a pretty picture of NextEra Energy, so it’s important to conclude with a warning. No matter how great a story you see in a stock, do not fall in love with it. Do not put all your eggs in one basket. Diversify. Try not to sell your winners unless they’re winning so much you need to trim them for diversification reasons. This past March, “the Rona” drove shares of NextEra Energy down -43% to $182 a share in just two weeks’ time. That’s why you use dollar-cost averaging. At times like that, you ignore the paper losses and take advantage of the buying opportunity.
NextEra is just one of thirty dividend growth stocks we hold as part of our dividend growth investing (DGI) strategy, Quantigence. Want to find out what other 29 DGI stocks we’re holding while learning how to build your own DGI portfolio? Become a Nanalyze Premium subscriber and access the below report in minutes.
You are welcome.
I presently own NEE. The only thing I knew about NEE was that almost every fund I looked at had NEE as one of its top 10 holdings. Then I noticed that selling one week calls was a profitable activity. That’s it.
After reading this article I can now add a 4-to-1 upcoming split.
The alchemy of their making money selling ‘alternative’ energy has escaped my consideration.
Now, I don’t know what to do.
Don’t speculate! If you want to hold the stock, hold it with a long horizon – perhaps a decade or more. Disruptive technologies need time to mature. Selling calls can supplement income if you’re sitting on shares, but it’s not advised unless you’re well versed in the risks, and what happens if your trade goes against you.
NEE is a play on wind (65% of NEE’s generation capacity) and solar energy (12% of NEE’s generation capacity), which means they’re 77% renewable energy.
Never try and time the market! Stocks fall and rise at will. Regularly timed purchases can offset that. Don’t put all your eggs in one basket. You know, the usual advice 🙂