Thanks to the miracle of compound growth, it's possible to turn a small investment into a massive nest egg given enough time and a strong enough rate of return. Long-term investors in energy companies Enbridge (ENB 0.75%) and NextEra Energy (NEE 1.71%) have seen the proof of that play out over the years. A $1,000 investment in Enbridge made 40 years ago would have grown into a stake worth more than $145,000 today. And the same amount put into NextEra's Energy predecessor company back then and allowed to ride would be worth more than $184,000 now.
Let's look at how those two companies managed to expand their valuations so impressively over the decades, and consider whether they have any more fuel in the tank to continue along that road.
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A pipeline to profits
Canadian oil pipeline company Enbridge -- which, 40 years ago was called the Interprovincial Pipe Line Company -- has generated remarkable long-term returns for its investors. Fueling that wealth-creating ability has been its policy of steadily expanding its energy infrastructure portfolio. By building and acquiring several pipelines while also diversifying its operations to include utilities and renewable energy assets, it created one of North America's largest energy infrastructure companies.
That steady growth gave management plenty of leeway to expand the company's dividend. Enbridge has increased its payout in each of the last 25 years, growing it at a more than 11% compound annual rate during that time frame, adding to its market-crushing total returns.
While the global economy is slowly shifting away from fossil fuels, Enbridge still expects lots of growth ahead. The company forecasts that its cash flow will expand at a 5% to 7% annual rate through 2022, fueled by its 11 billion Canadian dollar ($8.5 billion) expansion project backlog. While oil and natural gas pipelines will provide the bulk of its near-term revenue growth, the company is taking a gradual and disciplined approach to the energy transition by investing in several offshore wind projects and developments that use renewable natural gas and hydrogen. That forward-looking strategy should position it well to continue growing, and giving investors a dividend hike each year.
An early transition has paid big dividends
Investors who put $1,000 into utility Florida Power & Light Company -- NextEra Energy's predecessor -- roughly 40 years ago would have seen that investment grow into more than $184,000. That's an impressive return for a utility, which aren't known for their upside potential.
However, NextEra Energy isn't the typical slow-growth utility. It has invested heavily in renewable energy in recent years, which has supercharged its growth prospects. Since 2004, the company has grown its adjusted earnings per share and dividend at compound annual rates of 8.4% and 9.4%, respectively. That propelled it to a total return more than twice that of both its utility peer group and the S&P 500 over the past decade.
Meanwhile, management anticipates plenty of additional growth. The company recently increased its 2021 earnings growth forecast while extending its outlook through 2023 based on strong demand for renewable energy. That accelerating growth seems likely to continue given the projection that the use of renewable energy will grow at an accelerating pace post-2024 due to the expected continued decline in costs. On top of that, NextEra Energy has been an early leader in emerging clean energy technologies like battery storage and green hydrogen, which should supercharge its growth. Because of that, the biggest U.S. energy stock seems poised to gain even more value in the coming years.
Shifting power sources is paying off
If decades, fossil fuels have given Enbridge and NextEra the power to deliver significant returns to their investors, and they've both expanded their portfolios to support the global economy's growth. While the importance of oil and natural gas may now be on the decline, these companies should have no trouble maintaining their growth since they've both already started to transition to cleaner energy sources. Because of that, investors can expect many more years of profits from owning these stocks.
