Key Points
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Utility stocks have not, historically, been known as growth investments.
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Demand for electricity is set to see a step change.
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Utilities are suddenly offering more growth potential, even though investors still see them as boring dividend stocks.
Utility stocks were once called “widows and orphans” stocks because they were considered so safe and boring. That image isn’t far from the view today, noting that utilities are generally looked at as reliable dividend stocks.
But things could be about to change thanks to a step change in demand for electricity. Here are 10 utility stocks that present under-the-radar opportunities thanks to the growth the utility sector is about to see.
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What’s behind the change in the utility sector?
Before getting into the list of 10 utilities that you might want to look at today, it is important to understand the key underlying trends in the sector. Between 2000 and 2020 electricity demand grew 9%. Not 9% a year, just 9% over the entire 20-year period. Over the next 20 years, however, electricity demand is expected to grow by 55%.
Compared to 9%, 55% is practically explosive growth. The demand surge will flow from artificial intelligence (AI) and data centers, which are projected to see a 300% demand increase over just the next decade. And electric vehicles, which are projected to see an increase in electricity demand of 9,000% between now and 2050. All in, electricity is projected to grow from 21% of final energy demand to 32% by the middle of the century.
This should drive growth for utilities across the country, and for some companies that produce electricity but that aren’t actually utilities. Here are 10 companies to start you off if you want to take advantage of the long-term growth potential on offer from the utility sector.
1. Punt with an ETF
OK, Vanguard Utilities Index Fund ETF (NYSEMKT: VPU) isn’t a company at all, it’s an exchange traded fund. However, if you aren’t inclined to try to pick stocks, it gets you exposure to the utility sector quickly, easily, and in a diversified manner. Since the entire utility sector should benefit from the demand trends, Vanguard Utilities Index Fund ETF is a good punt option. The yield is currently around 2.8%.
2. NextEra Energy
NextEra Energy (NYSE: NEE) owns the largest utility in the state of Florida and has increased its dividend at a rapid 10% annualized clip over the past decade. That’s largely driven by the fact that NextEra Energy also owns a business that operates solar and wind power assets, which are not regulated. This provides investors with a solid foundation and a growth platform all in one investment. The yield is currently around 3.2%.
3. The Southern Company
The Southern Company (NYSE: SO) is one of the largest utilities in the United States with a focus on the Southeast. The big story here is the recent start up of two nuclear reactors, which will provide the utility with reliable clean energy to sell for decades to come. The construction of those power plants was over budget and delayed. But now that they are up and running Southern Company’s outlook is far less cloudy and it is positioned to supply power without the negative of producing greenhouse gases. The yield is 3.2%.
4. Duke Energy
Duke Energy (NYSE: DUK) has recently slimmed its business down, selling off non-regulated assets. The goal was to focus on the far more reliable demand that comes from regulated utility customer bases. This demand is set to see increased growth thanks to things like AI, data centers, and EVs. The big benefit for investors is that the ups and downs of Wall Street aren’t really a factor for Duke Energy’s plans once regulators approve its capital spending and rates. The dividend yield is around 3.5%.
5. Dominion Energy
Dominion Energy (NYSE: D) is a bit tougher to love than the utilities noted above. That’s because, like Duke, it has been trimming its business, which is now largely focused on regulated electric assets. But along the way there was a dividend cut and right now the dividend is stuck in neutral until Dominion’s balance sheet is in better shape. But the dividend yield is a lofty 4.7% and the company operates in one of the most important data center markets in the world. It’s worth a look for more aggressive investors.
6. Black Hills Corporation
Shifting to the opposite extreme, Black Hills Corporation (NYSE: BKH) has increased its dividend annually for more than five decades. That makes it one of the few utilities to have achieved Dividend King status. Add in a yield of 4.8% and income seekers will probably find it very attractive. Notably the utility’s customer base is growing at nearly twice the rate of the broader U.S. population.
7. Constellation Energy Corporation
Constellation Energy (NASDAQ: CEG) isn’t a regulated utility, instead selling power “competitively.” The big story here, however, is that the company operates the largest nuclear power fleet in the United States. There’s more downside risk here, since customers can cancel their contracts (which they can’t really do within a regulated supplier relationship), but there’s more upside, too, since increasing demand could lead to increasing power prices. Include the big position in nuclear power, which is likely to help sate the huge demand from AI, and it looks like Constellation could be a growth story poised to take off. It has a tiny yield of 0.5%, however, so income investors probably won’t be interested.
8. Brookfield Renewable (Partnership or Corporation)
Speaking of non-utilities, Brookfield Renewable (NYSE: BEP)(NYSE: BEPC) is another clean energy investment to consider. This is basically a one-stop shop for investors, given that its portfolio spans across hydroelectric, solar, wind, battery storage, and nuclear. And it owns assets the world over, so the opportunity for growth goes well beyond just the U.S. market. The company recently signed a decade-long deal to provide Microsoft with clean power for data centers.
The one wrinkle here is that there are two different ways to buy Brookfield Renewable, with the partnership class offering a 5.8% distribution yield and the corporate class offering a 4.5% dividend yield. The two classes represent the same entity, the difference in yield is driven by higher demand for the corporate class of shares. This is an attractive investment, but it’s a bit complex.
9. Portland General Electric
Portland General Electric (NYSE: POR) is a mix of opportunity and risk. On the risk front, it operates on the West Coast, where wildfires have been an ongoing concern. That said, on the positive side, its service area includes a key landing for international subsea communications cables. That puts Portland General Electric in a prime location for data centers and technology companies, noting that its service area includes the so-called “silicon forest” region. If you can handle the wildfire risk, the stock has a 5.1% dividend yield.
10. Eversource Energy
Last up on the list is Eversource Energy (NYSE: ES), which operates regulated utility assets in the Northeast. What’s interesting here is that the company doesn’t own power generation assets, it only distributes power on a local and interstate level. It passes the cost of power directly on to the customer, with its earnings largely derived from fees for the use of its transmission assets. Regulatory rate increases and new customer growth are the key stories here, with exposure to water and natural gas helping to provide a diversified business foundation. The dividend yield is roughly 4.7% today.
Plenty of opportunity ahead for utilities to grow
What’s exciting about the trends driving demand for electricity is that they aren’t going to play out in a year or two. They are expected to last decades, providing an opportunity for buy and hold investors to build material long-term wealth as the demand growth story plays out. The above 10 investments are a diversified collection of stocks (and one ETF) that you might want to look into now as the demand growth trends are just starting to pick up their pace.
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Reuben Gregg Brewer has positions in Black Hills, Brookfield Renewable Partners, Dominion Energy, and Southern Company. The Motley Fool has positions in and recommends Constellation Energy, Microsoft, and NextEra Energy. The Motley Fool recommends Brookfield Renewable, Brookfield Renewable Partners, Dominion Energy, and Duke Energy and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.