The energy industry had a rough day on Wednesday, and NextEra Energy (NEE -3.45%) seemed to face challenges on multiple fronts. Not only is a cold spell hitting the U.S., interest rates are up and fuel costs have been on the rise as well.
Shares of NextEra Energy were down as much as 4.2% in trading today and closed down 3.7%.
Energy faces headwinds
NextEra Energy had a rough 2023 in part because rising interest rates began to put pressure on the company’s cash flow and balance sheet. Not only does the parent utility have a huge debt burden, subsidiary NextEra Energy Partners (NEP -4.06%), which buys and holds renewable energy projects, has debt concerns as well.
NEE Total Long Term Debt (Quarterly) data by YCharts.
That impacted the stock today because 10-year government yields rose four basis points in the U.S. and eight basis points in Canada today and are up 19 basis points and 32 basis points respectively over the past month. Higher rates will increase costs and put pressure on the bottom line long-term.
A cold spell hitting the U.S. is also a concern because it’s pushed natural gas prices higher and could cause damage to the electric grid. This would increase capital and operating costs for NextEra Energy.
Perspecive for NextEra Energy
Shares of NextEra are down 30.5% over the past year, but this is still a giant utility with steady cash flow and a great renewable energy business. The dividend yield of 3.2% isn’t the highest in the industry, but given the company’s long history of growth and growing dividends, I think this is more of a buying opportunity than a reason to panic.
Travis Hoium has positions in NextEra Energy Partners. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool has a disclosure policy.
