1 Magnificent Dividend Stock Down 20% to Buy and Hold Forever

Key Points

• Offering a yield that's above its peers is one reason to like this stock.

• The company's 31-year streak of annual dividend increases is another reason to like it.

• But the real story is how this company mixes a reliable foundation with a growth business that's in line with global trends.

• 10 stocks we like better than NextEra Energy ›

The market tends to go to emotional extremes, which can make investing both fun and frustrating. When there's too much excitement, prices can get inflated. When there's too much pessimism, prices can get really attractive.

NextEra Energy (NYSE: NEE) is in the middle of this pendulum swing, and long-term income investors should do a deep dive while there's still an opportunity to buy at an attractive price.

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NextEra Energy went up, but now it's down

NextEra Energy's high-water mark came in 2022. It is currently off that peak by around 20% or so. That's actually an improvement, since, at one point, the drawdown had it off by 40%. Basically, this utility stock is in the middle range of the swing from investors being overly positive to being overly negative.

Image source: Getty Images.

That said, NextEra Energy's dividend yield is an attractive 3.1% right now. That's well above the 1.2% yield of the S&P 500 and notably higher than the average utility's yield of 2.7%. To be fair, you can easily find higher-yielding stocks, even in the utility sector. But NextEra Energy is still attractively priced, using yield as a rough gauge of valuation.

The swing in price here is tied to NextEra Energy's unique business. One part of it, operating a regulated utility, is highly reliable. In fact, it could even be described as boring.

The other part of its business, building and operating clean energy assets, is exciting, but clean energy has swung from being in favor to being out of favor. While solar and wind investing was hot on Wall Street, NextEra Energy was afforded a rich premium. Now that solar and wind are less attractive, investors are a lot less positive about NextEra Energy's future.

NextEra Energy is still growing strongly

The interesting thing about the clean power industry is that Wall Street's view of it hasn't altered the trajectory of the energy sector. The world continues to move from dirtier fuels toward cleaner and renewable alternatives. NextEra Energy is positioned to benefit, noting that it is still on target to double the size of its clean energy capacity by 2028. This effort will largely be driven by solar development, but wind and storage will also play important roles.

This is important because it changes the math in the regulated utility sector. NextEra Energy's core regulated utility business is a slow and steady grower. Its clean energy business has been the growth driver. That combination has led to an annualized 10% dividend growth rate over the past decade, which is good for any company, but huge for a utility. In fact, half that level would be considered a strong showing in this sector.

Given that there is a less positive view of clean energy today, you might expect that NextEra Energy's growth has slowed down. But as noted, it is still pushing ahead strongly on the clean energy side.

And that is expected to keep earnings growing between 6% and 8% a year through at least 2027. The dividend is projected to grow 10% a year through 2026. Management is very confident it will achieve these targets.

The key, however, is that the clean energy transition isn't a one- or two-year event. It is going to be a decades-long affair, offering NextEra Energy a long runway for future growth. So the 31 annual dividend increases that the company has racked up so far are likely to be added to for years to come.

What you get with NextEra Energy

So investors who step in to buy NextEra Energy while its shares are still down from their all-time highs by 20% are getting an attractive mix here: a strong business that mixes a reliable foundation with a growth platform, a reliable dividend-paying stock, a relatively high yield and rapid dividend growth rate, and the high likelihood that more growth, for the business and the dividend, is on the horizon. That should be a very attractive combination for dividend investors of all stripes.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool has a disclosure policy.