Grid Modernization and AI Demand Make Dividend Yields Exciting Again
Utilities stocks are typically known as the ultimate defensive investment. If you’re looking for the next Palantir or NVIDIA, you won’t find it in this sector. But what these companies may lack in growth, they make up for in how they return capital to shareholders. Many of these companies have a proven track record of paying and increasing their dividends over years, if not decades.
That business model has not been favorable for utilities since 2020. First, the sector fell out of favor with growth-hungry investors at a time when any company with a pulse was catching a bid. Then, in 2023, higher interest rates made other fixed-income investments more attractive than slow-growth companies, even those with impressive dividend yields.
But in 2025, the convergence of an aging electrical grid and the insatiable demand from artificial intelligence (AI) in the form of data centers has put the stocks in a sweet spot. Growth investors are getting an ample rate of return, and dividend yields start to look more attractive if the Federal Reserve is at the beginning of a rate-cutting cycle.
The good news is that the data center buildout is still in the very early stages. That provides significant room for utilities stocks to move higher. Here are three stocks that strike the right balance between long-term growth and sustainable dividends.
20 Years of Dividend Growth with a 3.44% Yield
Duke Energy Corp. (NYSE: DUK) is one of the largest electric power holding companies in the United States. One of the company’s strengths is its massive footprint that covers multiple states across the Great Lakes, Midwest and Southeastern United States.
DUK stock is up 14.5% year to date. That means it’s basically in line with the S&P 500. But it’s above its five-year average total return (stock price growth plus reinvested dividends) and in line with the 10-year total return. That 14.5% growth doesn’t account for the company’s dividend that yields 3.44%. Duke Energy has increased its dividend for 20 consecutive years.
Analysts give DUK stock a consensus price target of $132.25, which would be an additional gain of around 7%. That aligns with the expectation of about 6.3% earnings growth in the next 12 months. Plus, the stock’s forward price-to-earnings (P/E) ratio of 19.4 is a discount to its historical average.
Grid Modernization Spending Fuels Investor Optimism
Southern Company (NYSE: SO) is another company in the geographic sweet spot of the data center buildout. SO stock is up about 15% in 2025. That’s slightly below its average total return over the last five to ten years. However, the company has a dividend that yields 3.12%. Southern is also a dividend aristocrat that has raised its dividend payout for 25 consecutive years.
SO stock is up a little over 4% since the company’s last earnings report despite missing analysts’ profit estimates..That’s put the stock near its 52-week high and analysts’ consensus price target.
Having the stock grind higher after an earnings miss suggests that investors are seeing the silver lining behind the company’s announcement that it was increasing its capital spending plan by nearly 20%. That silver lining is in the form of grid modernization that will increase efficiency over time.
Potential Upside Despite Valuation Concerns
As a clean energy company, NextEra Energy (NYSE: NEE) would seem like a very contrarian pick for 2025. The Trump administration is scrutinizing existing wind and solar projects, which make up a significant amount of NextEra’s revenue.
However, the company also operates as a regulated electric company with its key market being the state of Florida, which continues to show residential and commercial growth.
That’s part of the reason that NEE stock is up 12.5% in 2025. That’s well above its average five-year total return. And it doesn’t account for the company’s dividend which yields 2.31% as of this writing. NextEra is another dividend aristocrat having increased its dividend payout for 31 consecutive years.
That said, NEE stock does look expensive at around 21x earnings. However, Morgan Stanley recently reiterated its price target of $95 for the stock, which suggests the company may deliver a positive surprise when it reports earnings in late October.
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