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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
NextEra Energy in Focus
Headquartered in Juno Beach, NextEra Energy (NEE) is a Utilities stock that has seen a price change of -2.12% so far this year. The parent company of Florida Power & Light Co. Is paying out a dividend of $0.57 per share at the moment, with a dividend yield of 3.23% compared to the Utility - Electric Power industry's yield of 3.22% and the S&P 500's yield of 1.56%.
In terms of dividend growth, the company's current annualized dividend of $2.27 is up 10.2% from last year. Over the last 5 years, NextEra Energy has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.75%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, NextEra's payout ratio is 60%, which means it paid out 60% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for NEE for this fiscal year. The Zacks Consensus Estimate for 2025 is $3.68 per share, which represents a year-over-year growth rate of 7.29%.
Bottom Line
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, NEE is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).