1 Magnificent S&P 500 Dividend Stock Down 39% to Buy and Hold Forever

NextEra Energy is among the largest utility companies in the world, which has delivered inflation-beating returns in the last 20 years.

The S&P 500 is among the most popular indices in the world as it provides you with exposure to some of the largest companies globally. Despite headwinds such as inflation, a sluggish macro economy, rising interest rates, and geopolitical tensions, the S&P 500 index has surged over 22% in the past year.

However, investors should note that the rally has been primarily driven by big tech stocks such as Nvidia, Microsoft, and Meta as investors are extremely bullish on the AI (artificial intelligence) megatrend.

Alternatively, companies part of capital-intensive sectors such as utilities, real estate, infrastructure, and energy are trailing the S&P 500 index by a wide margin as investors are worried about the rising cost of debt negatively impacting profit margins.

One such blue-chip S&P 500 stock is NextEra Energy (NYSE: NEE). Valued at a market cap of US$117 billion, NextEra Energy stock is down almost 40% from all-time highs, allowing you to buy the dip. Moreover, the pullback has increased NextEra’s dividend yield to 3.6%.

Let’s see why this magnificent S&P 500 dividend stock should be on your shopping list today.

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An overview of NextEra Energy stock

NextEra Energy generates, transmits, distributes, and sells electric power to retail and wholesale customers in North America. It generates electricity through sources including wind, solar, natural gas, and nuclear energy. NextEra develops, constructs, and operates these contracted assets, which include renewable generation facilities, battery storage projects, and electric transmission facilities. With 33,276 megawatts of net generating capacity and 883 substations, NextEra serves 12 million people each year.

In the last 20 years, NextEra Energy stock has returned 593% to shareholders. After adjusting for dividends, cumulative returns are much higher at 1,170%. In this period, the S&P 500 index has 537% after adjusting for dividends.

NextEra Energy is a Dividend Aristocrat

NextEra Energy is among the largest utilities south of the border and the largest producer of wind and solar power globally. Around 70% of its business consists of regulated assets, allowing NextEra Energy to benefit from steady cash flows across business cycles.

In the last 10 years, NextEra has grown dividends by 10% annually which is much higher compared to other utility companies. Moreover, in the last 30 years, NextEra has raised dividends by more than 6% annually, enhancing the effective yield significantly over time.

Despite an uncertain macro environment, NextEra Energy grew adjusted earnings by 9% year over year, showcasing its resiliency. It also forecasts earnings growth between 6% and 8% annually through 2026, which should support further dividend hikes.

What is the target price for NEE stock?

Florida Power & Light (FPL), NextEra’s subsidiary, is the largest utility in North America and a key driver of growth. Despite its massive size, FPL continues to grow at a brisk pace, increasing earnings by 12% in 2023. In the fourth quarter of 2023, FPL added 81,000 new customers and completed 1.2 gigawatts of new solar capacity.

Wall Street expects NEE stock to grow earnings by 7.8% annually in the next five years. Priced at 17 times forward earnings, NextEra Energy is not too expensive and trades at a discount of 26% to consensus price target estimates.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Meta Platforms, Microsoft, NextEra Energy, and Nvidia. The Motley Fool has a disclosure policy.

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