NextEra Energy (NEE) is expected to pay a dividend of $2.64 in the coming year (

Question

NextEra Energy (NEE) is expected to pay a dividend of $2.64 in the coming year (2013) according to Yahoo!Finance. Earnings and dividends per share are expected to grow at a 5% over the next five years and your best guess is that this growth rate will continue indefinitely. NEE's beta is 0.43, the expected return on the market is estimated at 8%, and the risk free rate is 3%. Use the CAPM to estimate the fair required return for NEE, and then value the stock using the constant growth DVM. Given that NextEra's stock is currently selling for $88.09 per share, would you consider it to be a good buy at present? Assume it is the beginning of the year.

Explanation / Answer

NextEra Energy (NEE) is expected to pay a dividend of $2.64 in the coming year (2013) according to Yahoo!Finance. Earnings and dividends per share are expected to grow at a 5% over the next five years and your best guess is that this growth rate will continue indefinitely. NEE's beta is 0.43, the expected return on the market is estimated at 8%, and the risk free rate is 3%.

Use the CAPM to estimate the fair required return for NEE,

E(R) = RFR + ?stock (Rmarket

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