Let the Future Pay You Rising Dividends

Tuesday, October 13, 2009 - 4:11pm

by Tom Hutchinson

You could find a boring stock with a solid, dependable dividend. No problem.

Or you might want to take your chances with some high-flying, hotshot growth company. Plenty of them have made lots of money, there's no doubt about it.

But the problem is that too many investors think these are their only choices. Staid income or free-wheeling growth.

Other options exist, though.

I've found a company that actually combines the best of both worlds. This company is at the world's cutting edge of alternative energy. This high-growth industry is only getting bigger. It's not a typical growth investment though. You see, this company also pays dividends like clockwork -- and it has increased them every year for more than 25 years.

FPL Group (NYSE: FPL) is one of the nation's largest electric utilities. It has customers in 27 states and Canada and books yearly revenues of more than $16 billion. FPL Group is a holding company for two principal subsidiaries; Florida Power & Light and NextEra Energy Resources.

Florida Power & Light is the largest investor-owned electric utility in Florida, with more than 4.5 million customers. It's a regulated utility, and its results represented about 53% of FPL Group's profits in the most recent quarter. (NextEra accounted for about 47%.) FPL Group is the nation's leading renewable energy provider and one of the nation's top providers of wind energy and solar power.

NextEra is as cutting-edge as it gets in the world of alternative energy. The company derives about 95% of its electricity from wind, solar, hydro, natural gas and nuclear sources. While the future for alternative energy looks bright, this company is not only doing it now, it's generating income today.

NextEra had earnings of $83 million in 2000. That has since grown to $821 million in 2008. In fact, last quarter, while Florida Power & Light saw profits slip slightly because of the recession (-1.8%), FPL Group's year over year profits soared +77%, largely because of the profits generated by new solar panels and wind turbines at NextEra.

NextEra isn't slowing down, either. The segment just announced the opening of a new solar-energy facility, is the largest of its kind in the nation. The facility is scheduled to begin producing by the end of October.
The Florida Power & Light utility segment is no slouch, either. The utility generates electricity with a clean and diverse fuel mix, including 53% natural gas and 22% nuclear. It ranks number one in the nation in energy-efficiency programs.

As North America's top producer of energy from wind and sun -- and with greenhouse-gas emissions among the lowest in the nation -- FPL Group could benefit from the Obama administration's green policy initiatives. Financial incentives will likely be offered to companies that use renewable energy and that advance alternative energy sources.

Green power is great as far at it goes. But let's get down to brass tacks here. The best thing about the company is its dividends.

FPL pays $1.89 a year in quarterly payment of $0.473. That gives it a current yield of about 3.5%. While the percentage yield isn't remarkable, the growth potential is. The company has, after all, raised its dividend every year since 1983. And growth prospects in alternative energy have never been better.

With the future uncertain and inflation looming, a steady and rising dividend paid by a company with a strong balance sheet and strong growth potential should make an excellent core holding for income investors. If nothing else, it proves investors can have income and growth.

Tom Hutchinson does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.