Keep This Utility

Dear Mr. Berko: I need your opinion on NextEra. I bought 250 shares of FPL Group in 2006 at $55, and that company has since changed its name to NextEra Energy. I need to know whether I should sell these shares and take a profit. My great stockbroker, who has been advising me for 20 years, wants me to keep the stock. But my husband — who is suddenly taking an interest in our account, which I’ve managed for the past 25 years — wants it sold. He is a recently retired certified public accountant and is insisting that we sell it because it trades at a big premium to other utilities. His interference is causing friction in our 30-year marriage. — RD, Durham, N.C.
Dear RD: It’s tough when a spouse who has been employed for 40 years or so suddenly retires. I can’t imagine a single reason to sell NextEra Energy. You have owned this stock for 10 years and have more than doubled your investment. I suggest that you consider divorcing your husband and marrying your stockbroker. Then continue holding this great Florida utility for another 10 years, because your investment could double again.
NextEra Energy (NEE-$127), formerly known as FPL Group, provides power to 5 million consumers residing in a 27,650-square-mile area of South Florida’s eastern coast, primarily Miami and Fort Lauderdale. This $16 billion-revenue company has a superb record of dividend growth, increasing annually from $1.50 in 2006 to $3.48 in 2016. This has been made possible by management’s skillful reduction in and elimination of fixed and variable expenses. However, the current dividend yields a very lonely 2.6 percent, and NEE’s revenue growth — from $15.7 billion in 2006 to $16.2 billion last year — has been flat as a flapjack. But all that’s about to change.
After 50-plus failed years of the United States’ idiotic policy toward Cuba, the current warming of relations with Cuba will be a boon to the economy of South Florida, especially Miami, where Spanish has become the lingua franca. Some 11.7 million Cubans live on their 777-mile-long island and have, according to the World Bank, over 208 billion of purchasing power parity (to the U.S. dollar) and a gross national income of 18,500 purchasing power parity. Only 26 percent of the population is connected to the internet, and even fewer have smartphones and cars. Some observers believe that detente with Cuba could grow the economy of South Florida by 10 to 12 percent while goosing NextEra’s revenues and income. These observers think that by 2021, Cuban detente could increase NEE’s revenues to $20 billion, improve earnings to $7.40 a share and grow its dividend to $5.60. NEE is purchasing Oncor — the biggest electric utility in Texas, with 7.5 million customers — for $18.4 billio!
n, and I’ve not included Oncor in these projections. The Oncor deal should close in June and could very nicely increase NEE’s revenues, earnings and dividend payout.
Though NEE trades at a premium to its peers, Argus Research has a long-term “buy” rating for six reasons: 1) NEE has a cozy relationship with the Florida Public Service Commission, and rate increases won’t be contentious. 2) Argus expects earnings growth to be well above average as the South Florida economy strengthens and NEE’s rate base expands. 3) Argus expects NEE to continue increasing its investment in renewables via its 80 percent stake in NextEra Energy Partners LP (NEP-$30). 4) Argus expects NEE to continue to reduce risks through new contracts and balance sheet improvement. 5) Argus expects management to maintain tight focus on shareholder value. 6) Argus believes that management will continue to raise dividends by 8 to 9 percent annually over the next five years.
Therefore, Argus has a 12-month price projection of $138. And I feel compelled to add to the third reason above: NEP has become one of the world’s largest renewable generation companies. NEP has an impressive wind and solar portfolio, which complements NEE’s portfolio of nuclear and combined-cycle gas turbines. And on a standalone basis, NEP would qualify as a top-15 utility. Last year, NEP contributed about $1.1 billion to NEE’s revenues and about $2.40 to NEE’s share earnings. That’s not unimpressive!
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected]. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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