Does NextEra Energy (NYSE:NEE) Have a Healthy Balance Sheet?

NextEra Energy (NYSE:NEE), the world's largest producer of wind and solar energy, has long been a beacon of financial discipline in the utility sector. Yet, as the company scales its renewable energy ambitions, questions arise: Can its balance sheet withstand the pressure of high leverage? Is the dividend—the cornerstone of its appeal to income investors—secure? Let's dissect the numbers.

Credit Ratings: A Fortress Underpinning Growth

NextEra's financial health is underscored by its top-tier credit ratings, a rarity in an industry riddled with debt-heavy peers. As of Q2 2025, the company maintains an S&P A-Range rating, Moody's Baa, and Fitch A Midpoint, placing it among the top 12% of U.S. electric utilities by creditworthiness. These ratings reflect its ability to meet obligations even amid rising interest rates and capital-intensive projects.

Key Metrics in Focus:
- S&P's FFO/Debt Ratio: 19.0% in 2024 (exceeds the 18% downgrade threshold).
- Moody's CFO Pre-WC/Debt: 19.4% in 2024 (surpasses the 17% bar).
- Fitch's Debt/FFO: 4.1x in 2024 (below the 4.5x red line).

These metrics are bolstered by strategic adjustments:
- Off-credit treatment of $5.5 billion in NextEra Energy Capital Holdings (NEECH) debentures.
- Nonrecourse financing of $13.1 billion in renewable projects, shielding core debt.
- A $1.5 billion cash buffer to cover short-term maturities.

Leverage and Liquidity: A Tightrope Walk

While credit ratings are strong, leverage and liquidity metrics raise red flags. As of March 31, 2025 (Q1), NextEra's interest coverage ratio dropped to 1.25, far below the 3.65 industry median for regulated utilities. This reflects rising interest expenses amid a $1.77 billion quarterly interest bill. The current ratio (0.55)—current assets relative to liabilities—also signals liquidity strain, as short-term debts outpace liquid assets.

Management's Playbook:
CEO John Ketchum and CFO Brian Bolster emphasize a 70/30 business mix: 70% regulated utilities (stable cash flows) and 30% unregulated renewables (growth). This structure aims to balance risk, but the pressure to fund projects may test debt discipline.

Dividend Safety: The Lifeline for Income Investors

Income investors have long relied on NextEra's 24% CAGR dividend growth over the past decade, but sustainability hinges on cash flow. The CFO-Div/Debt metric—CFO minus dividends divided by debt—was 12.3% in 2024, comfortably above Moody's 10% threshold. However, dividend payout ratios (dividends relative to earnings) have crept upward, from 54% in 2020 to 68% in 2024.

Risks and Rewards: A Balanced View

Risks:
1. Liquidity Pressures: A current ratio below 1 could force asset sales or debt issuance in a rising-rate environment.
2. Interest Rate Sensitivity: $38 billion of variable-rate debt exposes profits to Fed hikes.
3. Project Delays: Delays in renewable projects (e.g., permitting bottlenecks) could strain cash flows.

Rewards:
1. Regulated Utility Stability: The Florida Power & Light (FPL) segment generates predictable returns, shielding against renewable market volatility.
2. Moody's Baa Floor: Analysts see a Baa3 floor for Moody's rating, implying downside protection.
3. Dividend Resilience: Despite payout ratio growth, the dividend remains safe, with a 5.2% yield attracting yield-starved investors.

Investment Thesis: Buy with Caution

NextEra's balance sheet is a paradox: strong credit ratings mask liquidity tightness. Income investors should weigh the dividend's safety against leverage risks. The 70/30 model provides a cushion, but execution is critical.

Action Items:
- Hold for Dividends: Retain positions if yields remain above 5%, but monitor CFO-Div/Debt closely.
- Watch Liquidity Metrics: A current ratio rebound above 0.8 would ease concerns.
- Avoid Speculation: Leverage-driven growth may not justify current valuations (20x 2025E EPS).

In conclusion, NextEra's balance sheet is healthy but strained, much like a marathon runner pushing toward the finish line. Income investors should proceed with caution, prioritizing the dividend's safety over aggressive growth bets.