The Motley Fool: Energetic growth, dividends

The Fool’s Take

Dividend payer NextEra Energy has raised its payout every year for more than three decades, and has grown it at a 10% compound annual rate since 2007. Based on its strong second-quarter results and growth outlook, it should have plenty of power to continue increasing the dividend, which recently yielded 3.2%.

The core of NextEra Energy is its regulated utility operation, which is largely made up of Florida Power & Light.

On top of that, NextEra has become one of the world’s largest providers of solar and wind power. So this “boring” utility is positioned to grow along with the world’s demand for cleaner power alternatives.

One big benefit of mixing a strong and reliable core operation with a growth-oriented business has been dividend growth. NextEra’s average annual dividend increase of 10% is significant — half that rate would be good for a utility.

NextEra Energy’s earnings are growing rapidly, a trend that should continue in the coming years. The company’s earnings growth should give it fuel to continue increasing its high-yield dividend.

That compelling combination of growth and income makes NextEra Energy look like an excellent stock to buy and hold for the long term.

(The Motley Fool owns shares of and recommends NextEra Energy.)

Ask The Fool

From T.T., Big Rapids, Mich.: I know that when the stock market tumbles, dividend yields go up. Is that a good time to hunt for fat dividend yields?

Yes — with a caution. A dividend yield is simply a company’s annual dividend amount divided by its current stock price. So when the price falls, the yield will rise, and vice versa.

For example, if Buzzy’s Broccoli Beer pays out $0.50 per quarter, or $2 per year, and its price is $100 per share, its dividend yield would be $2 divided by $100, or 0.02 — which is 2%.

If the price drops to, say, $50, the dividend yield will be $2 divided by $50, which is 0.04, or 4%. That’s a much higher and more appealing yield!

Tread carefully, though. Sometimes a stock has fallen because the company is struggling and might end up having to reduce, suspend or even eliminate its dividend.

So go ahead and search for high dividend yields, but also make sure each company’s cash flow is fairly dependable and able to cover dividend payments.

From T.T., Big Rapids, Mich.: What’s the current tax rate for when you sell stocks?

If you’ve held your shares for a year or less, the short-term capital gains tax rate applies. It’s the same as your ordinary income tax rate — with tax brackets for 2025 ranging from 10% to 37%.

For stocks held longer than a year, the long-term capital gains tax rate is either 0% or 15% for most folks. Those with relatively high earnings will have a tax rate of 20%.

Remember that you can offset capital gains with capital losses to shrink the tax bite.

The Fool’s School

Like many of us, you may occasionally find yourself short on cash. When that happens, there are multiple ways to get your hands on the needed funds, and some are better than others.

One option is to borrow what you need from a friend or relative or even from a bank, via a personal loan. That can work well, but be sure to repay what you owe promptly, lest your relationship or credit score be damaged.

Alternatively, if you own a home and have built up some equity in it, you could take out a home equity loan or a home equity line of credit. Or, if current interest rates are well below your first mortgage rate, you might even refinance your mortgage, taking out some cash in the process. These strategies might offer better interest rates than other loans, but remember that they’re secured by your home, with your homeownership on the line.

Many people will be tempted to use credit cards more at times of financial stress, but this is risky, especially if your cards are charging steep interest rates. (It’s common for credit card rates these days to be more than 20%.)

A better strategy is to try to get a 0% APR credit card instead, which will charge you 0% for an initial period of up to 24 months. Aim to completely pay off the debt within that period.

Other possibilities include borrowing from or cashing out retirement accounts or life insurance policies. By doing so, though, you could shortchange your financial security in retirement and/or leave less money for your heirs.

You might not have to consider any of these strategies if you have an emergency fund at the ready, with at least three months’ worth of living expenses in it.

Another effective move is to spend less while earning more — perhaps via a short-term or long-term side gig. A little searching online will turn up plenty of possibilities — such as pet-sitting, tutoring kids or driving for a ride-sharing service.

My Dumbest Investment

From B.M., via email: My most regrettable financial move is that I saved too much. After retiring in 2019 at age 63, my wife and I had a long and optimistic view of the years to come. We had been frugal, saving and investing for a long time, and ending up with about $1.5 million.

We’re both active, with no preexisting health issues. In December 2023, though, I had a major stroke. Although I can once again drive, I can’t walk along trout streams or cycle with my bike club.

My recommendation to those reading this is: Save for the future, but don’t count on it. Enjoy the present.

The Fool responds: We’re so sorry to hear about your health challenges. But having socked away $1.5 million before you retired may not turn out to have been too much.

You probably have a decade or two ahead of you, after all, with, potentially, some unexpected expenses. Health care alone can cost a lot, especially for retirees.

Much depends, of course, on how much you’re collecting from Social Security and any other income sources, such as pensions, annuities, real estate investments, dividends and so on.

Still, while it’s vital to build a hefty nest egg for retirement, your advice to stop and smell the roses is also sound.

(Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.)

Who Am I?

I trace my roots to the National Union Life and Limb Insurance Co., which offered disability coverage for Civil War sailors and soldiers.

In 1868, its president changed its name to focus solely on life insurance. I’m now one of the largest U.S.-based life insurers. In my past, I’ve worked to eliminate tuberculosis, and I’ve run a visiting nurse service offering health care to millions.

Today, with a recent market value topping $50 billion and 49,000-some employees, I also offer annuities, employee benefits and asset management.

Don’t mistake my ticker symbol for a major art museum.

Who am I?

Forget last week’s question? Find it here.

Last week’s answer: Restaurant Brands International