1 Profit-Pulling Utility Ready for 2013
As New Year's Eve quickly approaches, and we all prepare to make our 2013 investing resolutions, now is a good time to reflect on the energy sector in year that was 2012.
In this December series, our writers will be recapping some of the most popular, highest-performing stocks in this sector. We will examine whether the gains these companies provided their shareholders in 2012 are sustainable, or whether they merely can be attributed to one-time events or fizzling trends.
Consider these pieces as gifts to benefit our Foolish, long-term investors seeking exposure to the energy sector. Enjoy, and Fool on!
Go green
If you invested in NextEra Energy (NYS: NEE) this year, now's the time to give yourself a pat on the back for its 21% annual return. That beats the S&P 500 (INDEX: ^GSPC) and knocks the Dow Jones Utility Index's 1% gain out of the ballpark.
Here are three reasons why NextEra is winning, as well as why buying now might be the best present Santa has on offer.
1. Natural gas
Whether you think it's clean or not, there's no denying that plummeting natural gas prices have helped this stock soar. Of NextEra's 41,000 MW of generating capacity, a wholesome 24% of that electricity comes from natural gas. The first six months of 2012 saw a 40% drop in wellhead prices, and only recently has demand started to push prices up again.
US Natural Gas Wellhead Price data by YCharts
2. Squeaky clean energy
Natural gas ain't nothing when compared to NextEra's clean energy offerings. Its 2011 wind capacity amounted to approximately 21,000 MW, or almost double Dynegy's (NYS: DYN) total capacity. As the largest generator of U.S. solar energy, NextEra's not just full of hot air, either.
Source: NextEra 10-K
Here's the regional breakdown of the NextEra's wind and solar operations (shown in green and yellow, respectively):
Source: Nexteraenergyresources.com
Duke Energy (NYS: DUK) and Exelon (NYS: EXC) aren't letting NextEra have all the fun, and are also ramping up their own (sort of) clean energy sources. Duke touts "clean coal," while Exelon has loaded up on nuclear.
3. A dividend that won't die
Let's face it, the utilities sector is not the most exciting, and power company investments often have more to do with dividend yields than growth stories. But NextEra has managed to defy industry norms by wooing investors with an average dividend, a sustainable payout ratio, and the sort of futuristic promises that only a 50% wind energy company can offer. Let's see where it stands:
Exelon | 5.9% | 121% | 0.9 |
National Grid (NYS: NGG) | 5.5% | 69% | 2.5 |
Duke Energy | 4.8% | 90% | 0.9 |
First Energy (NYS: FE) | 4.8% | 80% | 1.4 |
Southern Company (NYS: SO) | 4.3% | 77% | 1.14 |
Dominion Resources (NYS: D) | 4.0% | 100% | 1.7 |
Northeast Utilities (NYS: NU) | 3.5% | 75% | 1.0 |
NextEra Energy | 3.5% | 46% | 1.6 |
Source: e*trade.com, finviz.com
NextEra boasts the lowest payout ratio by a long shot, and has debt in line with a company reinvesting in its future. For several of these companies, their high dividends might disappear in the near future. For NextEra, its dividend's not going anywhere anytime soon.
NEE Cash Div. Payout Ratio TTM data by YCharts
The future is now
With President Obama back for four more years, his "Blueprint for a Secure Energy Future" promises continued support of clean energy. Plus, utility stocks have recently taken a dive amid fiscal cliff concerns and the accompanying dividend tax hike. Stock traders are worried about a short-term drop, creating the perfect opportunity for level-headed, long-term investors to swoop in and snag a deal.
Electricity's not going anywhere, and NextEra is producing and will continue to produce gigawatts of it from some of the cheapest and most sustainable sources around. NextEra has made a pretty penny for investors this past year, and there's no reason to think it'll turn anything but profits anytime soon.
As the nation moves increasingly toward clean energy, one company in this space that is perfectly positioned to capitalize on having the largest nuclear fleet in North America is Exelon. This strength combined with an increased focus on renewable energy, along with its recent merger with Constellation, puts Exelon and its best-in-class dividend on a short list of top utilities. To determine if Exelon is a good long-term fit for your portfolio, you're invited to check out The Motley Fool's premium research report on the company. Simply click here now for instant access.
The article 1 Profit-Pulling Utility Ready for 2013 originally appeared on Fool.com.
Justin Loiseau has no positions in the stocks mentioned above, but he does use electricity. You can follow him on Twitter, @TMFJLo, and on Motley Fool CAPS, @TMFJLo.The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Dominion Resources, Exelon, National Grid, and Southern Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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