![]() How much is such a contract worth? The answer is, it depends. The contract says that every year I will pay you $1,000 for a one time payment today. The discount rate is essentially your required annual return on investment. Paying $869.57 today for $1000 one year from now gives you a 15% return on your investment. For example, the value of $1000 one year from now discounted at 10% is $909.09. The discount rate is by how much you discount a cash flow in the future. This is the rate at which you discount future cash flows. These should be conservative estimates and are difficult to make for a company that has a short operating history or erratic cash flows.Ģ) The discount rate. Obviously, this is a guess, but it can be based on previous performance. There are two things you need to perform this calculation:ġ) The cash flows for all future years. where C i is the cash flow in year i, N is the total number of years the cash flows will be generated (typically taken out to infinity), and r is the discount rate. The formula to calculate the value of future cash flows is: Since a dollar one year from now is worth less than a dollar today, future cash flows are discounted by a discount rate. The general idea behind the method is this: the value of a company is the sum of all future cash flows that the company will generate discounted back to today. NEE investors have enjoyed 9.There are many methods to estimate the value of a company, but one of the most fundamental and frequently used is Discounted Cash Flow (DCF) analysis. That’s consistent with the utility’s last 15 years of dividend growth, which have been (to use a technical term) terrific! Our dividend man recently said he expects NEE to pay out 10% more annually through at least 2024. Kirk “calls the shots” too in terms of how much more money he’s going to hand out in the years ahead. Meanwhile NEE operates regulated Florida Power and Light, big in solar, now the cheapest form of energy in the state.Ĭhief Financial Officer Kirk Crews is my dividend hero because he’s the fastest pay raiser in the utility space. Its NextEra Energy division is one of the world’s biggest renewable-power investors, with 67 gigawatts in operation. NEE grows faster because it’s a better utility. It trounced XLU, which returned 137% over the same period. ![]() Over the last 10 years, NEE delivered 344% total returns (including dividends). They are magnets, pulling the stock higher. Over time, rising payouts drag their stock prices higher. We dividend magnet students know this story. Why not keep it simple and stop at NEE, the truffle butter of utility stocks? As goes the dividend, so goes the stock price-higher.īut why stop at XLU when we can cherry pick its very best holdings? NEE has the fastest growing utility payout on the planet! The company raised its dividend 183% over the last ten years. The ETF has grown its dividend by 47% over the past decade. Given a choice between XLU and TLT, I’m going with XLU because of the upside potential. NEE (NEE), Southern Co (SO) and Duke Energy XLU holds the who’s who of utility stocks like NextEra Energy Vanilla investor favorite SPDR Select Sector Fund (XLU Which means, not only are their prices low today, but they have more room for gains than a mere bond fund. But they are actual businesses that can grow cash flows. ![]() These are stocks, such as utilities, that trade like bonds. But we can do better-by considering bond proxies. Well no kidding! It’s a case of loving high and hating low. Yet it’s one of the most loathed ETFs on the planet, because it’s lost investors money for the past two years. Who was buying this thing at such little yield? Not us!įast forward to today.
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