Tag Archives: beach

A View From The Beach

Why should we diversify? Click to enlarge Photo: Petr Kratochvil. Source: Public Domain Pictures The reason to diversify is simple in some ways. Don’t put all your eggs in one basket, because that basket may fall. Spread things out – you don’t know what disaster lies ahead. And the math of diversification is pretty straightforward: your average risk is the average of all your asset returns, but volatility goes down based on how uncorrelated those assets are. If one stock zigs when the other zags, the overall portfolio is a lot more stable. By combining a lot of assets with different characteristics, you get an efficient portfolio. Click to enlarge Efficient Frontier: Source: Wikipedia But the psychology of diversification is hard. By holding assets in different asset classes from different industries that sit at different places in the capital structure, you can pretty much guarantee that some of your investments will look lousy. Consider the mid-2000s. Emerging markets were hot, generating 30% returns several years in a row. Growth stocks were dogs. Now, things are reversed. Emerging markets are beset by falling commodity prices and weakening global demand, while growth stocks shine. Click to enlarge Periodic Table of Investment Returns. Source: Callen Associates The temptation is to get rid of the assets that aren’t doing so well – like cutting the slow kids from a sports team. But that’s the mistake. Asset prices are adaptive – they adjust to our expectations. By avoiding assets with low expected returns, you make it a lot harder to beat the market’s expectations. The surest way to underperform is to sell assets when they’re down. No one knows what the next hot sector will be. Asset returns are like the wind: they blow in one direction, then change. We just don’t know when that change will happen. And whether the next breeze will be a light zephyr – or a hurricane!

Dividend Growth Stock Overview: NextEra Energy

About NextEra Energy NextEra Energy (NYSE: NEE ) generates, distributes and sells electricity to customers in 27 states and Canada. The bulk of the company’s customers are in Florida, served by its subsidiary Florida Power & Light Company. In addition to Florida Power & Light, NextEra Energy operates subsidiaries that generate renewable energy, provide electricity service to locations in Texas and New Hampshire, and sell fiber optic telecommunications services around the United States. The company employs nearly 14,000 people, and is headquartered in Juno Beach, Florida. Nearly 5 million customers are served by Florida Power & Light, which has 25,100 megawatts (MW) of electrical generation capacity. Over 90% of FPL’s capacity comes from natural gas and nuclear power. Based on 2014 figures (the latest year that’s available), over half of the operating revenues come from residential accounts, and another 36% come from commercial accounts. While wholesale revenues account for only 3% of the total, wholesale revenues were negligible as recently as 2012. NextEra Energy prides itself on using renewable power generation sources, and its promotional materials tout this effort; however, FPL’s two solar generation facilities provide only 35 MW of capacity. The company’s other major subsidiary is NextEra Energy Capital Holdings, Inc., which owns NextEra Energy Resources (NEE Resources) and NextEra Energy Transmission, LLC (NEET). NEE Resources is a wholesale generator of power and operates NextEra Energy’s competitive energy businesses (as opposed to its rate-regulated businesses). It also conducts energy-related commodity marketing and trading activities to mitigate risks from fluctuations in energy prices. NEET owns and operates two subsidiaries of its own, Lone Star and NHT, which provide rate regulated electricity service in parts of Texas and New Hampshire, respectively. NEET also owns FPL FiberNet, which leases internet network capacity to customers in Texas, New Hampshire and parts of the south-central United States. In 2014, NextEra Energy posted total income of nearly $2.5 billion on revenues of $17.0 billion. 60% of the total income was provided by Florida Power & Light, with the remaining 40% coming from NEE Resources. Earnings per share were $5.60 in 2014; NextEra Energy recently reaffirmed full-year 2015 earnings in the upper half of a range of $5.40-5.70, which translates into a year-over-year increase of between 1% and 2%. Based on the current dividend of $3.08, the company’s payout ratio is 56%. It expects to compound EPS at 6-8% a year through 2018, and is projecting EPS of $5.85-6.35 in 2016 and $6.60-7.10 in 2017. NextEra Energy has a share repurchase program that was authorized in February 2005 and reaffirmed in July 2011. Its repurchase activity is sporadic. The initial authorization in 2005 was for 20 million shares, and over a decade the company has repurchased less than 7 million shares. As of December 2014, 13.3 million shares, representing 2.9% of the outstanding shares, remained on the program. The company is a member of the S&P 500 index and trades under the ticker symbol NEE. As a member of the S&P 500, once NextEra Energy has increased dividends for 25 consecutive years, S&P will classify the company as an S&P Dividend Aristocrat. Given that NextEra has made a conscious effort to increase its dividend each year for 21 years straight, I expect the company to continue to do so. This would put it on track to become a Dividend Aristocrat at the beginning of 2020. NextEra Energy’s Dividend and Stock Split History (click to enlarge) NextEra Energy has compounded its dividend at 8% over the last decade. It has paid dividends since at least 1983, and has increased them since 1995. The company announces annual dividend increases in mid-February, with the stock going ex-dividend at the end of February. In February 2015, NextEra Energy announced a 6.2% dividend increase to an annualized rate of $3.08 per share. The company should announce its 22nd consecutive annual dividend increase in February 2016. Historically, NextEra Energy has increased dividends in the mid-single digits, but over the past few years, it has increased the growth rate. Over the last 5 years, it has compounded its dividend at 9.02%, while over the past 10 and 20 years, the company has compounded the dividend at 8.05% and 6.46%, respectively. The company has split its stock twice. The splits, both 2-for-1, occurred in January 1985 and March 2005. A single share purchased prior to January 1985 would have split into 4 shares. Over the 5 years ending on June 30, 2015, NextEra Energy stock appreciated at an annualized rate of 19.0%, from a split-adjusted $46.00 to $95.23. This outperformed the 15.0% compounded return of the S&P 500 index over the same period. NextEra Energy’s Direct Purchase and Dividend Reinvestment Plans The company has both direct purchase and dividend reinvestment plans. You must already be an investor in NextEra Energy to participate in the plans; if you own the stock in your brokerage account, you’ll have to have it transferred into your name in order to join the plans. The minimum investment for additional direct purchases is $100, and the dividend reinvestment plan allows for full or partial reinvestment of dividends. The plans’ fees structures are favorable for investors. Depending on the source of the shares purchased – and, unfortunately, you’ll have no control over that – you’ll pay a maximum of 3 cents per share purchased if they’re purchased off the open market; there’s no charge if the shares are purchased directly from NextEra Energy. When you sell your shares, you’ll pay a transaction fee of either $15 or $25 (depending on the type of sell order) plus a commission of 12 cents per share. You’ll also get charged an additional $15 if you go through a phone agent to sell your shares. All fees will be deducted from the sales proceeds. Helpful Links NextEra Energy’s Investor Relations Website Current quote and financial summary for NextEra Energy (finviz.com) Information on the direct purchase and dividend reinvestment plans for NextEra Energy Disclosure: I do not currently have, nor do I plan to take positions in NEE.