Utilities, a retiree favorite for dividends, emerged as the best-performing sector in the S&P 500 in 2024, and several names are among the favorites on Wall Street. The sector, which includes companies such as Constellation Energy and NRG Energy, is up 20% in 2024 as investors chase names linked to powering data centers behind artificial intelligence. In fact, data centers may need 400 terawatt hours of electricity by 2030, according to Mizuho Securities. Bank of America sees another tailwind for utilities: The sector is a way to play with low interest rates. “Utilities and Real Estate dividends have become more attractive,” equity and quant strategist Savita Subramanian said in a report on Monday. He noted that dividend yields from most utilities and real estate investment trusts will be more attractive because the firm’s economists now forecast interest rates to fall to 3.25% by 2025. To that end, CNBC Pro used FactSet data to examine the S&P 1500 utilities sector, looking for companies that meet the following criteria. Covered by at least 10 analysts. Get a rating of at least 55% of the Wall Street experts covering them. CMS Energy total return of at least 10% in 2024 – share price and value of reinvested dividends. About 56% of analysts covering the stock rate it a buy or overweight. The stock offers a dividend yield of 3.0% and a total yield of around 23% in 2024. The Jackson, Michigan-based utility posted second-quarter adjusted earnings of 66 cents per share, beating analysts’ estimates of 62 cents per share, according to FactSet. In an earnings call at the end of July, CEO Garrick Rochow said he was “very interested in both manufacturing and data centers in the state.” “Both hyperscalers and I’m seeing some growth in midscale from a data center perspective,” he said. The company is also involved in electrification. In July, Consumers Energy, a subsidiary of CMS, announced plans to power 1,500 new fast charging stations for electric vehicles by the end of 2030. NextEra Energy is also on the list, with about 65% of analysts polled by FactSet rating it. purchase or overweight. The stock has a total return of around 38% year to date and it offers a dividend yield of 2.5%. Morgan Stanley highlighted Juno Beach, Fla.-based NextEra in a late-August report after the utility reported adjusted earnings that beat expectations in the second quarter. “Management noted that backlog with data center customers is now 4 (gigawatts) and 3 GW in 24Q20,” the firm noted. “The highlight for the company was 860 (megawatts) from Google of the newly added backlog to support its data center needs.” In addition, Morgan Stanley analyst David Arcaro expects data center deals to offer higher valuations and earnings for NextEra. Other names on CNBC Pro’s list include Allentown, Pennsylvania-based PPL, which has a total return of 22% and a dividend yield of 3.2% in 2024; and Sempra of San Diego, which has a 3% dividend yield and a total return of about 14% year to date. — CNBC’s Fred Imbert contributed reporting.
