Motley Fool: Blown Away

NextEra Energy (NYSE: NEE) has been one of the most unique growth stories in the renewable energy arena. As a regulated utility, NextEra features the rare combination of growth from new investments and predictable inflows from existing infrastructure that support its dividend. This balance has allowed NextEra to allocate as much as $28 billion toward new projects between 2019 and 2022.

NextEra’s leading renewables portfolio is the result of more than 20 years of investments. But the company has been ramping up renewable spending even more over the past few years. In the third quarter, it added a record 2.2 gigawatts, or GW, of signed contracts to its renewables backlog (1.44 GW of net new additions). This brings its total renewable backlog to more than 15 GW, which is more than its entire existing renewable portfolio.

Wind energy is NextEra’s largest renewable investment. As of the third quarter, new wind energy projects and wind repowering (updating old wind farms) accounted for 80% of 2019 to 2020 renewable contracts.

NextEra Energy is one of the safest ways to invest in wind energy. As an established utility, it has the funds to invest in large-scale regulated renewable energy investments that should return a steady stream of free cash flow. The company’s dividend recently yielded 1.9%, and it has been increased for 26 consecutive years. (The Motley Fool has recommended NextEra Energy.)

Ask the Fool

Q: What does a “one-time charge” refer to on a company’s financial statement? – S.T., Dover, New Hampshire

A: It’s an accounting adjustment meant to reflect a nonrecurring unusual outflow (or inflow) unrelated to the company’s business operations. For example, it may be tied to a lawsuit, layoffs or a plant closing.

Some companies frequently include one-time charges in their reporting, making them not so “nonrecurring.” Such accounting can be used to make a company’s performance look better than it was. According to the Corporate Finance Institute, for example: “Airline companies are often involved in fuel hedging to control their costs. Sometimes, hedging activities generate large profits. A company may decide to include such profits in their revenue numbers even though fuel hedging is not its core business.”

Beware of companies with too-frequent “one-time” charges, and when you see one, try to figure out whether it’s problematic.

Q: Are companies with low profit margins bad investments? – C.R., Vineland, Colorado

A: Not necessarily. Fat profit margins are generally preferable, as they often reflect competitive advantages (such as a strong brand that commands a higher price). Still, you needn’t avoid lower-margin businesses. Instead, look at the whole picture.

Imagine, for example, that the Laverne Brewery Inc. (ticker: DEFAZ) has a whopping net profit margin of 25%, while Shirley Beer Co. (ticker: FEENY) has just a 2% margin. But if Laverne sells only three cases of beer a year, while Shirley sells thousands, Shirley is the better buy, generating more total profit.

Some industries, such as pharmaceuticals, financial services and software, often have high profit margins. Furniture stores and supermarkets typically have low ones – but if they have high sales volume, they can still be good investments.

My smartest investment

My smartest investment has been buying shares of companies such as Apple, Google, Disney and Nvidia for my kids in December 2018 and January 2019. They now think they are making money when they interact with these companies on a daily basis. – C.E., online

The Fool responds: That’s very smart indeed. Turning your kids into investors can set them up to be financially savvy and secure for the rest of their lives. And starting by investing in companies they know, like and use is an effective way to build interest.

It’s never clear (and it’s not that important) how stocks will perform in the short run, but if they do well, it can generate excitement quickly. And since owning a share of stock in a company is an actual ownership stake (though admittedly a small one), your children really are contributing to the growth of their businesses when they patronize them.

Other companies that might interest young investors include Activision Blizzard, Amazon.com, Chipotle Mexican Grill, Coca-Cola, Facebook, Hasbro, McDonald’s, Microsoft, Netflix, Nike, PepsiCo, Snap, Spotify Technology, Starbucks, Target and Tesla. Make sure that they understand that some businesses they like are parts of other companies: Instagram is owned by Facebook, for example.

To learn more about investing, your kids might want to read “The Motley Fool Investment Guide for Teens” by David and Tom Gardner with Selena Maranjian (Touchstone, $17).