Dividend aristocrats, companies that have grown their dividends for 25+ consecutive years, have historically made great long-term investments. In fact they tend to outperforming the S&P 500 by a wide margin over time and with far less volatility.

The trouble is that some of the better known aristocrats, while low risk investments, have faced much slower growth rates in recent years. This is why I want to highlight NextEra Energy (NEE), which has been raising its dividend every year since 1995. This means that in 2020 it becomes a dividend aristocrat. And despite being a regulated utility this company has proven itself to be capable of truly impressive total returns over the years.

• NEE 30 year total return: 4,190% (13.4% annual total return)
• S&P 500 30 year total return: 1,950% (10.6% annual total return)

More importantly, there are three reasons why I full expect NextEra Energy to be capable of delivery industry leading: dividend safety, growth, and double digit total returns for many decades to come.

Core Business Model Makes It The Ultimate Recession Proof Stock

Founded in 1925 as Florida Power and Light  or FPL, NextEra Energy is one of America’s largest regulated utilities with 46.5 GW of electrical capacity. It serves 5.1 million customers, mostly on in the fast growing coastal cities. That’s after acquiring Gulf Power and Florida City Gas from Southern Company in June 2018 in a $6.5 billion deal (including debt assumption).

Florida Light & Power makes up about 70% of the company’s revenue and operates in one of the nation’s friendliest regulatory environments. Remember that regulated utilities are government sanctioned monopolies that have locked in customers in exchange for regulators having to approved returns on equity and base rates (invested capital on new projects). The US Census Bureau estimates that Florida’s population will grow by 35% or 7.4 million people between 2017 and 2030 and then continue growing at 2% through 2100.

This creates a massive need for gas and electricity investment which is why NEE’s regulators allow it some of the highest returns on equity of any utility in America. Over the past 12 months those have averaged 11.5%, compared to the 9.5% average ROE most utilities enjoy. This is what allowed NextEra to report a 13% jump in its adjusted EPS in the last quarter, an impressive growth rate indeed in a usually slow growing industry. Combined with the $18.5 billion in approved growth projects for FPL has lined up between 2017 and 2020, the utility expects to grow its EPS by 6% to 8% over the next two years, and its dividend about 13% during that time.

However, analysts actually expect the utility to beat that guidance and accelerate its long-term EPS growth to around 9% over the next decade. The reason is its unregulated subsidiary NextEra Energy Resources or NEER. This is the company’s renewable power division and provides its growth engine with some very potent rocket fuel.

Renewable Energy Provides The Longest And Strongest Growth Runway In The Industry

While NEER is an unregulated business that doesn’t mean its cash flow is any less stable than FPL’s. That’s because NEER mainly owns solar and wind projects that are under long-term (20 year) fixed rate and inflation adjusted purchase power agreements or PPAs with investment grade utilities all over the US and Canada.

Source: NextEra Energy Investor Presentation

Today NEER owns about 16 GW of solar and wind projects located in 24 states and four Canadian provinces. This makes NextEra Energy America’s largest provider of renewable energy. But what matters to dividend growth investors is that NextEra plans to potentially double its renewable energy capacity by 2020 with 16 GW of additional projects via about $23 billion in investment.

What’s more by 2020 management expects to have its renewable backlog up to 40 GW of new projects to complete over the next five years (through 2025). That means that over the next seven years NextEra Energy could boost its renewable capacity, all of which will be under multi-decade long fixed rate contracts, from 16 GW to 56 GW. For context at the end of 2017 the entire US solar and wind capacity was 121 GW.

All told this means that between 2017 and 2020 NextEra plans to invest about $41 billion into growth projects (and about $47 billion through 2022), all of which will greatly its recession resistant and stable cash flow. NEE has two primary funding sources for this ambitious growth plan. The first is $5 to $7 billion in excess balance sheet capacity. This is how much credit rating agencies say it can borrow without losing its industry leading credit rating. More important is NextEra Energy Partners, the company’s yieldCo for which is serves as the general partner and sponsor.

NEP raises external debt and equity from investors attracted to its 3.7% yield and 15% annual payout growth rate, and then buys NextEra’s renewable power projects from it. In the process it obtains the highly stable cash flow with which to fund its super fast distribution growth. But because NEE owns 65% of NEP’s limited units (what yieldCos call shares), as well as its 25% incentive distribution rights, about 90% of that highly stable contracted cash flow ends up flowing back to NEE. In other words, the utility can recoup 100% of the cost of its renewable projects, while still enjoying 90% of the cash flow they generate.

And with the cost of renewable energy falling to as low as $0.03 per kWh today (cheaper than gas, coal, or nuclear even without subsidies that phase out in 2023)  and expected to keep falling steadily, US demand for such projects is expected to continue growing strongly for decades to come. This means that NextEra Energy is likely to remain America’s fastest growing utility for the foreseeable future and continue generating industry leading dividend growth, as well as market beating total returns.