Recession-proof utility stocks have always been stable dividend payers, making them popular long-term investments. But new exponential demand driven by artificial intelligence transforms these Wall Street wallflowers into high-growth AI plays. According to Goldman Sachs Research analysts, AI is set to drive a 160% increase in data center power demand. With interest rates potentially lowering this year, now is an opportune time to power up portfolios with utilities.
These stocks carry interest rate risk that can draw conservative investors away when rates rise. However, with Treasury yields declining and grid infrastructure requiring upgrades to meet swelling power demand, utilities may soon shine brighter. As Exelon’s CEO predicts, electricity consumption from Chicago’s data centers alone could jump 900%, rivaling multiple nuclear plants. Beyond dividends, growth potential is why Goldman Sachs touts utilities as an alternative way to tap the AI boom. Some companies are bracing for up to 80% sales jumps from data centers. Yet valuations don’t account for this pending surge.
That disconnect signals an underpriced upside, perfect for investors wanting AI exposure without overpaying for tech stocks basking in the hype. As AI transforms utilities from merely recession-proof to growth-charged, their stocks could electrify portfolios with power to spare this year.
NextEra Energy (NEE)
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As one of the U.S.’s largest electric utilities and renewable energy companies, NextEra Energy (NYSE:NEE) has established itself as one of the top recession-proof utility stocks. Its subsidiary, Florida Power & Light (FPL), is America’s largest electric utility, serving over 12 million people. It also projects continued strong growth, with over 100,000 new customers added in the first quarter of 2024 alone.
Despite economic downturns, people still need electricity, which provides NextEra Energy with steady revenue. For 2024, NextEra Energy expects adjusted earnings per share between $3.23 to $3.43. It also plans to grow its dividends per share by 10% through 2026. NextEra Energy Resources, its renewable energy subsidiary, also had a record quarter. Thus, it added 2,765 megawatts of solar and storage projects to its portfolio.
With renewable energy demand rapidly rising to power data centers and AI technology, NextEra Energy is positioned to capitalize through its $85-95 billion infrastructure investments planned through 2025. Over the next decade, FPL expects a huge boost in renewable energy production. Therefore, it’s projected to increase from 6% to 38% of total solar generation and a doubling of battery storage. So, while recessions may negatively impact other stocks, NextEra Energy’s essential electric services, strong earnings, dividend growth, and pivotal role in the renewable energy transition make it a stable, recession-proof utility stock.
Southern Company (SO)
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Southern Company (NYSE:SO), the Atlanta-based energy giant, has established itself as one of the more stable recession-proof utility stocks. Its operations across electricity and natural gas position it well to provide consistent shareholder returns regardless of economic conditions.
In Q1 2024, Southern Company reported strong financials. This included $6.6 billion in operating revenues and $1.3 billion in earnings before income taxes. It also achieved $1.1 billion in net income available to shareholders. These represent respectable year-over-year growth rates of 2.6%, 44.4%, and 31.0%, respectively. Southern’s earnings per share also grew from $0.79 in Q1 2023 to $1.03 in Q1 2024.
Southern’s regulated electric and gas utilities are a fundamental factor that makes it recession-proof. The latter generate steady revenues across business cycles. For example, in Q1 2024, the company saw 1.7% weather-adjusted retail sales growth. Additionally, it added over 75,000 new utility customers. Southern also has major infrastructure projects, like the recently completed Plant Vogtle nuclear facility in Georgia, which will supply carbon-free energy to over 1 million homes and businesses for decades.
With strong operational performance, consistent customer growth, and long-term clean energy investments, Southern has shown resilience regardless of the economy. For these reasons, Southern remains a stable choice among recession-proof utility stocks.
WEC Energy Group (WEC)
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WEC Energy Group (NYSE:WEC), headquartered in Wisconsin, is one of the Midwest’s biggest electric and natural gas utility holding firms. With a focus on reliable service and consistent dividend growth, WEC qualifies as one of the top recession-proof utility stocks.
A critical factor that makes WEC Energy recession-proof is its impressive record of dividend growth. The company has increased its dividend for 21 consecutive years, with a 7% dividend raise announced in January 2024 to $3.34 per share. This stability results from consistent earnings growth, with 2023 adjusted earnings per share rising 4% to $4.63. Even in times of economic uncertainty, households and businesses still need electricity and heating, allowing WEC’s profits to remain steady.
In addition, WEC Energy intends to pay out 65-70% of its earnings as dividends. With a forward dividend yield of 3.7% based on the newly announced dividend rate, the stock offers an attractive income stream for investors. This aligns with the company’s focus on shareholder returns.
We Energies, a subsidiary of WEC Energy, has also just obtained approval for a $300 million distribution project in Mount Pleasant, where Microsoft (NASDAQ:MSFT) is building its new data center campus and investing $3.3 billion to spur AI innovation. Therefore, for investors seeking a defensive stock that can weather market volatility but with AI exposure, WEC Energy stands out in the utility sector.
On the date of publication, Andrea van Schalkwyk did not hold (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.