Berko: NextEra Energy, ‘si’; Miami, ‘no’
Friday, September 20, 2013 7:00 AM
Dear Mr. Berko:
My wife, my three youngsters and I may move to Miami. I’ve been offered two positions at 35 percent more than I’m making now, but we’re reluctant to move because we’ll be so far from both our parents and family members. But believe it or not, we’re both die-hard Dolphins and Marlins fans (long story), which would make the move more tolerable. What can you tell me about NextEra Energy Inc., which is one of the two companies that might hire me? I might even buy 100 shares for my individual retirement account.
L.P., Oklahoma City
NextEra Energy is one of the best “foreign” utilities I know of. In another lifetime, long, long ago, it was called Florida Power & Light. NextEra Energy (NEE-$79) serves 9.2 million people in a fast-growing 27,600-square-mile service area encompassing southeastern Florida – where Spanish is often the preferred form of communication, the schools stink and the crime rate is off the charts. But in 2005, you could have bought 100 shares of NEE at $40. That year, NEE earned $2.32 a share and traded at a price-earnings ratio of 19-to-1, and its $1.42 dividend yielded 3.2 percent. This year, NEE expects to earn $4.95 a share – more than twice what it earned in 2005 – trade at a 16 P/E and pay a $2.64 dividend yielding 3.3 percent, almost twice its cash payout in 2005. And some NEE enthusiasts believe that the board will recommend a 2-for-1 split early in 2014. So recognizing that the Florida regulatory climate is overfriendly, it’s reasonable to reckon that by 2018, NEE could grow revenues 5 percent annually, to $17.8 billion, and that both earnings per share and dividends could compound 7 percent, to $6.55 and $3.65, respectively.
NEE’s nonregulated energy business, NextEra Energy Resources, or NEER, provides almost 50 percent of NEE’s operating profits. NEER is the largest wind power producer in the U.S., with 2,100 megawatts of capacity in the U.S. and Canada. NEER is also on line to produce 925 megawatts of solar capacity by 2015 and owns a fleet of nuclear and fossil fuel power plants throughout the country. NEER owns some of the most desirable wind generation sites in the U.S., and its large, diversified generation capacity creates impressive advantages of scale and flexibility over its many smaller competitors. Some believe that NEE may spin off this asset, which could impressively improve shareholder value. And there’s also talk that NEE will invest $1.55 billion in a joint venture with Spectra Energy Corp. (SE-$33.48) to build a gas pipeline from Alabama to Florida. The completion date should be in late 2017, and NEE would be able to earn a sweet, federally regulated return of 10.5 percent on its investment.
NEE is one of those rare growth and income utilities with an excellent reputation on the Street and very capable management that knows how to communicate with its well-trained workforce. NEE is also on the recommended list of Merrill Lynch, J.P. Morgan, Wells Fargo, KeyBank and Bank of New York Mellon. Its shares are prominent in the mutual fund portfolios of Vanguard, BlackRock, Wellington, Franklin, State Street and others. And I’d be pleased to own this stock because I think NEE is a compelling long-term buy for conservative investors seeking above-average performance.
However, you must know that moving to Miami from Oklahoma would be a profound cultural shock to you and your family. I strongly urge you and family members to become fluent in Spanish before you move. Spanish is the official language in South Florida, and most telephone answering devices tell you to “press 2 for English.” You may be a Marlins and Dolphins fan, but you certainly won’t be enamored of the drug-infested and racially charged public school system, which is one of the worst in the nation, and negotiating the county and city bureaucracy makes the Pentagon look like child’s play. Real estate taxes and homeowners insurance costs will knock your socks off. Automobile traffic is 24/7 gridlock, and violent gang wars should give you cause for pause. But the warm weather, fishing and ballgames are incomparable.
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