These Are the Largest Utility Stocks by Market Cap, but the Best Buys May Not Be What You'd Expect

The Motley Fool just updated its list of the largest public utilities, highlighting some of the biggest and best that investors can buy. The top name on the list operates Florida Power & Light, one of the largest regulated utilities in the United States.

But that’s not the main reason you’ll want to buy this utility and its rapidly rising dividend. Here’s what you need to know about the largest public utility, and why it might not be what you expect.

The biggest and best

The Motley Fool’s list of the largest utilities contains some very well-known utility stocks, like The Southern Company, Duke Energy, and American Electric Power (AEP). But the biggest company by far is NextEra Energy (NEE 0.48%), which has a list-topping market cap of $148 billion. That’s roughly $30 billion higher than the next name on the list, foreign utility Iberdrola.

From one point of view, NextEra Energy is just your normal run-of-the-mill regulated electric utility. As noted, it operates Florida Power & Light. That business has benefited for years from in-migration to the Sunshine State, as people sought out nice weather and low taxes. The trends that have supported this side of NextEra’s business are unlikely to change anytime soon, given that the baby boom generation continues to flow into retirement.

That said, while there’s growth on offer from a larger customer base, there are limits built into the regulated-utility business model. Notably, regulated utilities have to get their rates and capital investment plans approved by the government. Sure, they get a monopoly in the areas they serve, but regulators are always balancing customer costs, reliability, and shareholder returns. The general outcome is slow and steady growth. This side of NextEra’s business is roughly similar to peers like Southern and Duke, which are more typical utility stocks.

NextEra’s dividend growth is renewably powered

And that brings to the fore that part of NextEra Energy that might not be exactly what you’d expect. In addition to being one of the largest regulated utilities in the United States, NextEra Energy happens to be one of the world’s largest solar and wind power companies. It has tapped into the ongoing energy transition from dirtier energy sources to cleaner ones.

This business is growing at a rapid clip. It currently has 39 gigawatts of capacity, but has a project backlog of 30 gigawatts. Putting that another way, the company has enough work lined up to nearly double its capacity. The capital investment plan for this business alone is roughly $75 billion through 2028. So, hidden behind Florida Power & Light is a growth-oriented renewable-power business.

That’s important to know, because it helps explain how NextEra Energy has managed to grow its dividend at a 10% annualized clip over the past decade — and why management believes it will be able to increase the dividend at that rate through at least 2026. Half that dividend growth rate would be considered very attractive for a utility stock.

NextEra Energy: Income and income growth

So what you’re getting as an investor is a dividend growth utility. But that’s not the whole story, because the current dividend yield is around 3.2%, which is higher than the average utility yield of roughly 2.7%. If you’re looking for a utility, NextEra Energy could provide you with the best of both worlds: a high yield and robust dividend growth. You probably didn’t expect that from the largest public utility in the world.