NextEra yields 2.8%. The ten-year Treasury reached 5.12% three weeks later.
If you own a utility as a substitute for a bond, that sentence should stop you. The substitute pays about 55% of what the original pays, and the original cannot cut its coupon, lose a rate case, or issue more of itself to you at a worse price.
But the yield comparison is the smaller half of the problem. The larger half is that a utility was never a bond in the first place — and almost every number a screener will show you about one is measuring the wrong thing.
Three numbers that are right and useless
NextEra, as at our August 2026 report
| What the screen says | Why it looks alarming | Why it means nothing here |
|---|---|---|
| Altman-Z of 1.08 | Nominally the distress zone — the range associated with bankruptcy risk | The score was built in 1968, on 66 manufacturers. It reads heavy fixed assets funded with debt as danger. For a regulated utility, that structure is the licence. |
| Free cash flow −$11bn | The company consumes eleven billion dollars a year more than it produces | That is what a working utility looks like. The spending goes into regulated assets the regulator then allows a return on. It is not a leak; it is the mechanism. |
| Return on capital 4% | A dismal return, barely above cash | A regulated utility does not earn a return — it is awarded one. Florida authorised 10.95%. Florida Power & Light earned 11.70%. |
Read the last row twice. The regulator authorised 10.95% and the utility earned 11.70% — it beat its allowance. That is the number that describes how this business is doing, and there is no screener in the world that will show it to you, because it does not come from the financial statements. It comes from a rate case.
A regulated utility does not earn a return. It is awarded one, and then either achieves it or does not. Everything else is downstream of that sentence.
A bond and a rate base are not the same instrument
| A government bond | A regulated utility | |
|---|---|---|
| What you are owed | A fixed coupon, by contract | Nothing. A regulator sets an allowed return |
| Who can change it | Nobody | A state commission, in a public proceeding |
| Your capital back | At par, on a stated date | Whatever the shares fetch, whenever you sell |
| Growth | None — the coupon is the coupon | The rate base grows, so the earnings base grows |
| Dilution | Impossible | Routine — new assets are funded partly with new shares |
The fourth row is the entire investment case, and it is a real one. A bond's coupon is fixed forever; a utility's earnings base compounds as it builds. Over twenty years that difference is enormous and it is why utilities have rewarded patient owners.
But it only works if the growth actually arrives. Which brings us to the number almost nobody wrote about.
The growth rate steps down by 40%
NextEra's reputation was built on roughly 10% annual dividend growth. Buried in the guidance is that it steps down to 6% from the end of this year — a 40% reduction in the growth rate, disclosed rather than announced.
Work through what that does to the only argument for accepting 2.8% today. Starting at a 2.8% yield and growing 6%, your yield on the price you paid passes the 5.12% the Treasury pays today in year eleven. At the old 10% rate, it got there in year seven.
Four extra years of waiting to reach a return you can have this afternoon, risk-free. That is not an argument against owning it. It is the argument you are actually making, stated honestly.
What the same company is building
It would be unfair to leave it there, because the growth is not imaginary. NextEra is in the middle of the largest utility merger in American history — buying Dominion for around $67 billion in stock — which puts 36% of its rate base in Virginia.
Virginia is the densest concentration of data centres on earth. A regulated utility whose rate base sits underneath the one industry currently building as fast as it can raise money is not a bond proxy in any sense. It is a leveraged, regulated bet on electricity demand — with the regulator setting the return and the data centres setting the volume.
That may work very well. It is simply a completely different thing from the safe income substitute the label implies.
Three checks before you buy a utility
It is public — it comes from the rate case, not the accounts. A utility earning above its allowance is operating well; one persistently below it has a problem no margin analysis will reveal. Florida authorised 10.95% and the utility earned 11.70%.
Rate base growth is future earnings growth, almost mechanically. But check how it is being paid for: if a large share comes from issuing new shares, some of that growth is being handed to the new shareholders rather than to you.
Two numbers, one line. If the yield is below the bond and the growth rate has just been cut, you are being asked to wait longer for less. That can still be the right trade — but make it deliberately.
Of the three alarming numbers we started with, not one would change our view of this company by a single point. The distress score is a 1968 model applied to a business it was never built for; the negative cash flow is the business model working; the 4% return on capital is measuring a return that is set by a commission rather than earned in a market.
If you take one habit from this piece: before applying any ratio, ask what the ratio was designed to detect, and whether that thing can even happen here.
A regulated utility yielding below the bond, a net-lease REIT just above it, and a pipeline paying for the gap with leverage.
Rate base, allowed returns, coverage and leverage, worked through.
Frequently asked
Are utility stocks a good substitute for bonds?
Not at these levels, and not structurally. NextEra yielded 2.8% at our August 2026 report against a ten-year Treasury that reached 5.12% in September — a substitute paying barely half of what the thing it substitutes for pays. Structurally the two are different instruments: a bond pays a fixed coupon and returns your capital, while a utility is awarded a percentage return on an asset base that grows.
Why is NextEra's free cash flow negative?
Because that is what a working utility looks like. Free cash flow of minus $11 billion a year is the signature of a company investing more than it earns into new regulated assets — and since the regulator then allows a return on those assets, the spending is how future earnings are created. Negative free cash flow is a warning sign in most industries and a description of the business model in this one.
Does a low Altman-Z score mean a utility is in trouble?
No. NextEra's Altman-Z of 1.08 sits nominally in the distress zone, and it means nothing here: the score was built in 1968 on 66 manufacturers, and it reads heavy fixed assets funded by debt as danger. For a regulated utility that structure is the licence. Meanwhile Florida's regulator authorised a 10.95% return and Florida Power & Light earned 11.70%.
How do you actually value a regulated utility?
On three things a screener does not show: the allowed return on equity the regulator has authorised, whether the company is actually earning it, and how fast the rate base is growing. A regulated utility does not earn a return in the ordinary sense — it is awarded one, and then either achieves it or does not. Everything else is downstream of those three.