Alrighty! November is almost over and like most months I put some capital to work. I had several stocks that I was watching the last couple of weeks, including Archer Daniels Midland, Kimberly Clark, NextEra Energy and AT&T. Three of those names you might have expected, but I can't remember I have ever seen anyone in the DGI community mention NextEra Energy. Did you? But first, let's summarize my buys.
On 21 November I bought 19 shares of AT&T (T) for $35.26 per share (including commision) for a total of $670.06. With this purchase I now own 59 shares of AT&T.
On 21 November I also bought 10 shares of NextEra Energy (NEE) for 157.75 per share (including commision) for a total of $1,577.56. This is a new position.
Let's get into it!
Recent Buy: AT&T (T)
Let's start with this one, because it's easy to explain. I already owned 40 shares of this telecom giant. And since the stock price has been dropping from $40+ to $33ish this was a great opportunity to add to my position.
It's really no big surprise to see so many DGI bloggers add to their position the last few weeks. The yield is now up to 5.7% while the dividend is still well covered by free cash flow. Hard to resist, right?
I could go really indepth here about AT&T, but I don't want to make this blogpost too long. Most of you know AT&T and why it's such a popular stock among dividend growth investors. However, if you still would like to know a little bit more, I'd highly recommend you check out this article by Jason Fieber or his video analysis where he discusses AT&T in his 'Undervalued Dividend Growth Stock of the Week' series.
Recent Buy: NextEra Energy (NEE)
This purchase might surprise you a little, am I right? I'm following quite a lot of DGI bloggers, and almost noone has this stock in their portfolio. Which seems a bit weird to me, because it's a fantastic dividend growth stock that, in my opinion, seems attractively valued at the moment.
So, how did I find this stock? Well, every month I like to download a copy of David Fish's document of Dividend Champions, Contenders and Challengers. Then I run a filter over the entire list and see which companies are still left.
The criteria I used are as follows:
- Dividend yield > 2% and < 5% (bigger than 2% and smaller than 5%)
- Market cap > 20b
- Years of consecutive dividend increases >= 10
- Payout ratio < 60%
- P/E < 20
- P/B < 3
- Estimated 5-year growth > 5%
- 10-year dividend growth rate >= 7%
After running this filter, there are 6 companies left on the list:
- AFLAC
- Cardinal Health
- CVS Health
- NextEra Energy
- Sempra Energy
- Walgreens Boots Alliance
I already got a pretty sizable position in CVS Health, so I decided that right now I'm not interested in adding more drug related companies, so CVS, CAH and WBA are out.
This leaves me with AFL, NEE and SRE. I don't have any insurance or utility stocks in my portfolio, so these companies seemed like potential investment ideas to me. After doing some research I was most attracted to NextEra Energy. Let's take a quick look why.
Business overview
NextEra Energy was founded in 1925 and is currently the worlds largest utility company, focussing on renewable energy. They own and operate wind, natural gas, solar and nuclear power plants. They also operate transmission and distribution facilities. Their generating capacity is roughly 45,900 megawatts.
Growth numbers
Revenue grew from $15,263b in 2007 to $16,155b in 2016, which is a compounded annual growth rate (CAGR) of 0.57%. On first sight this doesn't look very impressive, but revenue is just 1 side of the story. We must also look at the earnings per share. EPS grew from $3.27 in 2007 to $6.25 in 2016, which is a CAGR of 6,69%.
Dividend
At the moment of my purchase the dividend yield is 2.48%. This is lower than most utility stocks, but remember that NextEra Energy is still growing pretty fast. The dividend growth is also higher than most utility stocks.
Dividend growth
NextEra Energy has increased it's dividend for the past 23 years. This makes them almost a dividend champion. Just 2 more years. When we look at the last decade, they increased their dividend from $1.64 in 2007 to $3.48 in 2016, which is a CAGR of 7.81%. I like it.
Competitive advantages
What I like about NextEra Energy is that they have a very recession resistant business model. People won't stop using electricity during a recession. And all those electricity generating assets won't run away either. They will keep generating electricity, ensuring a very steady stream of revenue.
And eletricity usage will only keep increasing, and a lot of that electricity is going to be green energy. Just imagine a world where all electricity is generated from renewable sources. That's the way we're going. A long term view maybe, but real nonetheless. I believe this is a long-term tailwind for NextEra Energy because they are focussing on renewable energy.
Valuation
NextEra Energy currently trades at it's all-time high of around $156ish. I know this might be reason enough for some investors to not invest in it, but I have a different view. I don't really care what the stock price was 5 years ago and how the current stock price compares to that. All that matters is the future. So if I like a company's growth prospects, and I like the entry point, I buy. Even if that means I buy at all-time highs.
Conclusion
I didn't have any exposure to the utilities sector, so this seemed to me like a great opportunity to increase the diversification of my portfolio by buying some NextEra Energy. My position is relatively small compared to the rest of my portfolio, but that's okay. Another cool thing is that I bought this company just before it's ex-dividend date, meaning that I will receive my first dividend in jus a matter of weeks :).
What do you think of this purchase? Do you like NextEra Energy? Maybe you even own it yourself? Make sure to leave your thoughts in the comments, they are much appreciated!
SD
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