Key Points
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NextEra Energy expects electricity demand to grow by 60% between 2025 and 2045.
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The company is leaning into that demand as it looks to acquire its peer, Dominion Energy.
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Duke, Southern, AEP, and Xcel Energy are also set to benefit from growing demand.
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NextEra Energy (NYSE: NEE) and Dominion Energy (NYSE: D) plan to merge, as NextEra seeks to tap into the massive growth in electricity demand it expects. Duke Energy (NYSE: DUK), The Southern Company (NYSE: SO), American Electric Power (NASDAQ: AEP), and Xcel Energy (NASDAQ: XEL) are all hoping to do the same thing. And there’s a huge opportunity, with electricity demand expected to increase 60% between 2025 and 2045. To put that demand into perspective, it increased by only 10% between 2005 and 2025.
Here’s a look at each of these six large dividend-paying U.S. utilities and why you might want to consider buying each one.
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1. NextEra Energy: Big and diverse
NextEra Energy offers a 2.8% dividend yield. That’s in line with the industry average of roughly 2.8%. However, NextEra is anything but average; it is the world’s largest utility by market cap. And it plans to get even larger through the proposed acquisition of Dominion (a utility discussed in more detail below).
But the real story with NextEra is that the business has two parts. The foundation is its regulated utility assets, today largely composed of its Florida Power & Light operations. In addition, NextEra operates one of the largest wind and solar power businesses on the planet. This business uses long-term, market-based contracts. That has been an important growth engine for the company. If you are looking for a single utility investment, NextEra covers a lot of ground.
2. Duke Energy: Steady growth is lined up
Duke Energy offers a 3.3% yield. In recent years, it has become a leaner business, selling its contracted power assets to focus on its regulated operations. It operates across the electric and natural gas segments of the industry, with regulated utilities in North Carolina, South Carolina, Florida, Indiana, Ohio, and Kentucky. It is also one of the world’s top 10 largest utilities by market cap.
Duke believes its $100 billion capital spending plan over the next five years will support annual earnings growth of 5% to 7%. The company generally has constructive relationships with its regulators, which increases the likelihood of success on this front. And in many regions where it operates, there are mechanisms that automatically adjust rates based on spending. It is a solid option for investors seeking a regulated utility.
3. Southern Company: The first new reactors are online
The Southern Company has a yield of 3.2%. It has either increased or maintained its dividend for 79 years, making it a highly reliable income stock. The most notable event in the company’s recent history was the completion of Vogtle 3 and 4, the newest nuclear power plants built in the United States. That sets the company up well to supply the electricity demand that it sees ahead.
That said, the company has an $81 billion capital investment plan that it believes will support long-term earnings growth of 7% to 8%. Like Duke, the company has electric and gas operations. Its regulated electric business spans Alabama, Georgia, and Mississippi, with a smaller, unregulated business that sells power under long-term contracts. Its modest natural gas distribution operations expand the company’s reach into Illinois, Tennessee, and Virginia. Like NextEra and Duke, it ranks among the world’s 10 largest utilities.
4. American Electric Power: Diversified growth
American Electric Power offers a 3% yield. It is projecting annual earnings growth of 7%-9% through 2030, powered by a $78 billion capital investment plan. And, like the three companies above, it ranks among the world’s 10 largest utilities.
The company has an extremely broad footprint, with regulated electric operations across 11 states: Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia, and West Virginia. It also has a large transmission business. It is probably one of the most diversified electric utility options here.
5: Dominion Energy: Could be going away soon
Like Duke Energy, Dominion Energy has been slimming down to its core utility operations. The most recent move was to sell the majority of its regulated natural gas utilities to Enbridge (NYSE: ENB). But there’s an even larger change on the horizon, as Dominion has agreed to be acquired by NextEra Energy. Dominion’s yield is 3.8%.
The big draw for NextEra Energy is twofold: Dominion has a large nuclear power business, and it operates in one of the world’s most important data center markets. Notably, buying Dominion will catapult NextEra into the number two spot in nuclear power in the U.S. market. It will also expand NextEra’s business to include Virginia, North Carolina, and South Carolina. That said, Dominion is really a special-situations play at this point given the pending acquisition, so it probably won’t appeal to most investors despite its relatively high yield.
6: Xcel Energy: Pushing the growth accelerator
Xcel Energy yields 2.9%. It recently updated its five-year capital investment plan, extending it through 2031. The update includes $70 billion in capital spending that management believes will drive earnings growth of 9% or more. That’s particularly high for a utility.
Notably, Xcel operates in regions well-suited to developing solar and wind power. That gives it an edge as the world shifts toward renewable power generation. With operations across eight Western and Midwestern states, Xcel is probably best suited for investors who favor growth.
Plenty of options to benefit from demand growth
Electricity is an increasingly important source of power. In fact, the modern world can’t work without reliable electricity. All six utilities on this list provide reliable power, though each does so slightly differently and in different regions. If you are looking to generate income from the increasing demand for power, any one of them could be a good starting place for investor preferences that range from growth to income to special situations.
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Reuben Gregg Brewer has positions in Enbridge and Southern Company. The Motley Fool has positions in and recommends Enbridge and NextEra Energy. The Motley Fool recommends Dominion Energy and Duke Energy. The Motley Fool has a disclosure policy.
