Key Takeaways
- Utilities are still outperforming in 2026, driven by data center demand and rising capital spending.
- The sector’s multiyear rally has pushed valuations higher, leaving fewer broadly cheap names.
- Future upside will depend more on stock selection as regulators scrutinize customer bill affordability.
Utilities are extending a surprising rally as investors continue piling into a sector once known more for stability than growth. The Morningstar US Utilities Index is up about 10% in 2026 through April 10, while the broader market is roughly flat for the year, as measured by the Morningstar US Market Index. Over the past 12 months, utilities stocks rose about 33%, slightly ahead of the US market’s 27% gain. Utilities have nearly doubled on a total return basis from their October 2023 low, marking the sector’s strongest two-year stretch in roughly two decades.
The multiyear rally reflects a shift in how investors view the sector. Utilities are no longer trading mainly as bond-like dividend stocks for low-growth companies. Instead, the market has rewarded these stocks amid rising electricity demand fueled by data centers, manufacturing, and electric vehicles, along with the massive capital spending needed to meet that demand.
“Earnings should keep growing, supporting utilities returns,” Morningstar analysts Travis Miller and Andrew Bischof wrote in a recent report. This means the next phase of returns is likely to depend more on stock selection than the broader theme.
Utilities Trade More on Growth Than Yield
One of the clearest signs of the sector’s new profile is its dividend yield. Utilities stocks now yield about 3%, by Miller and Bischof’s measure—a multi-decade low that is about a full percentage point lower than the yield on US 10-year Treasuries. That low yield is partly a reflection of the sector’s rally, since dividend yields are a function of dividend payouts and stock prices; as a stock’s price rises, its dividend yield will fall, unless the company also raises its dividend amount.
The low yield is a notable shift for a sector that has traditionally traded more like a bond proxy, with utilities stocks often pressured by rising interest rates, since investors can instead earn income from Treasuries and other fixed-income alternatives. “This marks a generational shift, as investors have started to value utilities’ growth over their yield,” Miller and Bischof write. The focus on growth helps explain why utilities have done well even as interest rates remain elevated. Typically, these stocks suffer during times of rising or elevated interest rates because of the competitive investment offered by bonds. Plus, higher interest rates raise the cost of capital for utility companies.
Data Centers Drive Utility Demand
The sector’s stronger growth outlook is being driven largely by surging power demand from data centers. “The data center infrastructure buildout remains a large driver for utilities growth over the next five years and beyond,” write Miller and Bischof.
After years of little growth, overall US electricity demand rose 2.8% in 2025. Miller and Bischof expect annual growth to average 1.4% through 2030. Commercial demand is rising faster than overall growth, they say, with a 4.9% year-over-year increase driven largely by data centers.
US data center electricity demand should triple between 2024 and 2030, rising to 10% of total US electricity demand by 2030 from 3% today. Travis and Bischof write that data centers are “materially positive for electricity demand,” especially in regions with lower-cost power, available grid capacity, and constructive regulation.
Capital Expenditures Support Earnings Growth
Utilities stocks have also benefited from one of the sector’s strongest investment cycles in years. “Electricity demand growth, grid upgrades, and large investments that support earnings growth,” write Miller and Bischof.
Morningstar expects capital spending in the utilities sector to rise 6% in 2026 after rising 12% in 2025. The Edison Electric Institute estimates that capital expenditure in the sector will reach $1.1 trillion in 2025-29, nearly matching the prior 10 years’ $1.3 trillion.
For regulated utilities stocks, that spending supports earnings growth by expanding the rate base. Investors are rewarding companies with large multiyear investment plans, strong load growth, and regulatory frameworks that improve cost recovery, according to Miller and Bischof.
Valuations Look Less Compelling After the Rally
The stronger growth outlook has helped support the sector’s rally, but it has also made valuations harder to ignore. Miller and Bischof say that the “early-year rally leaves few utilities with attractive valuations,” with most of the stocks trading at slight premiums to their fair value estimates.
The current median price/fair value ratio for utilities stocks is about 1.07, meaning utilities are trading roughly a 7% premium to Morningstar’s fair value estimate. That’s up from 0.84 (a discount of 16%) in October 2023, but below the previous peak of 1.22 (a premium of 22%) in February 2022. The sector median is around 18.8 times earnings, above where it traded near the October 2023 trough, while dividend yields have also compressed to about 3.0%-3.1%.
Investors can still find opportunities, but the sector no longer offers the same valuation cushion it did earlier. The early 2026 rally “leaves few utilities with attractive valuations,” the analysts write.
Affordability Is a Key Risk
Beyond valuations, the bigger question is whether utilities can keep turning growth plans into approved spending as customer bills rise. Miller and Bischof say, “Customer bill affordability is a major concern for utilities.” They point out that these companies still need regulatory support to recover the costs of new generation, grid upgrades, and data center infrastructure.
But rising residential power bills could make regulators less willing to approve large rate increases, especially in higher-cost states. That makes cost allocation critical. Utilities that can shift more incremental infrastructure costs to large-load customers, such as data centers, should be better positioned to keep growth plans on track, according to Miller and Bischof.
Morningstar’s Top Utility Stocks
Alliant Energy
Alliant is well-positioned for data center expansion in Iowa and Wisconsin.
- We estimate Alliant’s annual earnings growth at the high end of management’s 5%-7% guidance through 2027, and more than 7%-plus growth in 2027 and beyond.
- The company’s four-year $13.4 billion capital investment plan supports our growth estimate, which is up 24% from its prior capital plan.
- Alliant has four data center customers supporting 3 GW of peak demand, driving 11% annual sales growth from 2025-31. Three data center campuses have started construction, and the fourth has a signed electric service agreement. Negotiations for an additional 2 GW-4 GW could materialize beyond 2028. This plan is supported by constructive regulation across its operating subsidiaries.
- We expect management to continue to update and execute on the 2-4 GW of additional data center backlog throughout 2026.
Read more about Alliant Energy here.
Duke Energy
Duke has seen above-average growth with improving regulation.
- Duke is a fully regulated utility with a clear pathway to achieving management’s 5%-7% annual earnings growth target at the high end.
- Duke’s $103 billion capital investment plan for 2025-30 to support residential and commercial load growth and infrastructure upgrades.
- Duke enters 2026 with significant regulatory clarity across its subsidiaries, with most of its investments recovered through customer ratemaking mechanisms that significantly reduce regulatory lag.
- In North Carolina, Duke’s most important jurisdiction, regulation has improved significantly due to legislation that allows for multiyear forward rate agreements and investment support.
Edison International
Constructive regulatory outcomes support growth for Edison, while wildfire concerns remain an overhang.
- Although management has said material losses from the Eaton fire in January are “probable,” we think California’s AB 1054 legislation will minimize shareholder losses.
- We think the worst-case scenario from the 2025 Eaton fire liabilities based on AB 1054 is $4.4 billion, or $8 per share after tax. We assume $1 per share of shareholder losses primarily from financing expenses.
- We assume Edison invests nearly $8 billion annually during the next four years. Regulators signed off on most of that investment with approval of Edison’s 2025-28 general rate-case settlement. This should support 7% average annual earnings growth, at the high end of management’s 5%-7% target.
- Interest expense tied to 2017-18 disaster liabilities should ease once Edison issues securitization bonds that regulators have approved.
Read more about Edison International.
Portland General Electric
Investors are ignoring Portland’s fast-paced renewable energy and electricity demand growth.
- We think investors are overestimating the impact of regulatory and policy uncertainties in Oregon. Recent constructive regulatory outcomes support long-term infrastructure growth investment.
- Oregon’s renewable energy mandates offer upside to management’s $7.6 billion investment plan in 2026-30, pushing annual earnings growth to the high end of management’s 5%-7%. Winning bids for another 4 GW of projects would be incremental to PGE’s current growth plan.
- Electricity demand around Portland grew 4.7% in 2025, and it is on track to grow a similar amount over the next few years, based on manufacturing and data center expansions. Higher electricity prices for data center customers should boost earnings starting in late 2026.
- Portland General’s wildfire risk is minimal, given its urban service territory and temperate climate.