Personal Finance

Retire in Comfort: 3 Utility Stocks That Keep Your Paychecks Flowing

John Seetoo

Published: January 8, 2025 10:55 am

24/7 Wall Street Key Points

• Due to the gargantuan electricity demands from the proliferation of data centers being built to handle the exponential growth of A.I, utility stocks have appreciated accordingly.
• Utility companies that pay sizable dividends are poised to deliver both capital appreciation and reliable income for the near and mid-term future.
• Given the continuing income stream and prospective upside aspects, those approaching or already in retirement might do better to buy high-yielding utility stocks into Roth or regular brokerage accounts with after-tax funds. 
• Take this quiz to see if you’re on track to retire (Sponsored)

AI’s Unquenchable Electricity Thirst

One of the revelations of President Donald Trump’s close friendship with Elon Musk was the huge electricity demand required to power Artificial Intelligence (AI). In numerous press conferences and interviews, Trump has extolled the national urgency for energy independence, and cited AI’s requirement for double our national grid output as an imperative. 

According to a recent Politico article, he may be underestimating the electricity demand level: “A report backed by the Department of Energy reckons that the power needs of data centers could triple by 2028. Another report, by Grid Strategies, a consulting firm, found that five-year demand projections have skyrocketed from 23 gigawatts in 2022 to 128GW last year. It came amid warnings from the North American Electric Reliability Corp. that large swaths of the country’s power grid are at increasing risk of blackouts.”

As a result, utility companies are coming into the spotlight. Morningstar’s US Utilities Index rose 28.19% in 2023-2024, and electricity demand over the next decade is anticipated to outstrip the rate of the past quarter century. From an investment perspective, there appears to be both considerable appreciation potential, as well as dividend income prospects from utility stocks. The three listed below are examples that might benefit a retirement portfolio, thanks to their high yields. Given the likelihood of dividend increases as an added kicker, buying these stocks in a standard brokerage or Roth account might be a more practical strategy for retirees who have no need to defer the extra income. 

NextEra Energy Partners

Stock: NextEra Energy Partners LP (NYSE: NEP)

Yield: 19.45%

While President Trump’s aversion to green energy mandates and subsidies is well known, he has acknowledged that he has no problem if green companies can compete in the marketplace on equal footing to cultivate their own customer base, such as in the case of EVs. 

Juno Beach, FL headquartered NextEra Energy Inc. (NYSE: NEE) is the 3rd largest US energy company by market cap after ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX). Its subsidiaries include Florida Power and Light, NextEra Energy Resources, Gulf Power Company, and others, such as NextEra Energy Partners LP.. 

In order to capitalize on renewable and clean energy sources that have expanded globally over the past two decades, NextEra Energy Partners LP acquires, owns, and manages a portfolio of clean energy assets, such as:

• Windmills
• Solar Panels
• Solar energy storage 
• Standalone rechargeable batteries
• Natural gas pipeline assets 

NEP wisely includes natural gas assets along with solar and wind power, to hedge the reliability issues with the latter. The AI need for consistent power has been a major driver for the resurgence of fossil fuels, such as oil, coal, and natural gas. 

The 19.45% yield is certainly huge and understandably a red flag, but there is an explanation. NEP added 3,000 MW of new projects in Q2 2024. Its stock took a drop over the past two quarters due to these and other battery storage and solar development investments and acquisitions. Totaling $13.5 billion, NEP diluted its stock to pay for equity buyouts on these projects. However, they are expected to be instrumental in NEPs ability to ramp up electricity production in upcoming years to meet AI demand. Additionally, parent company NextEra Energy Inc., which owns the majority stake of NEP, may increasingly rely upon NEP’s green energy assets to comply with those states that maintain their carbon emission regulations going forward.

For dividend minded investors, NextEra Energy Partners LP has an over 10-year unbroken streak of quarterly dividend payments, and increased its dividend yet again, in November 2024. 

AES Corp.

AES Corp. (NYSE: AES) 

Yield: 5.43%

Founded in 1981 and operating from Arlington, VA, AES Corp. provides electricity to over 2.6 million customers across a number of countries. The company’s ability to generate its 34,596 MW capacity comes from a combination of platforms, including:

• Gas
• Hydro
• Coal
• Wind
• Solar
• Biomass
• Landfills Gas
• Renewables

With operations previously extending to as many as 15 other countries due, in part, to a Siemens battery storage joint venture in Germany, Dominican Republic, India, and elsewhere, AES has decided to narrow its geographic expanse to focus on markets where it has a dominant competitive advantage. As a result, US earnings have increased of late by over 50%, and AES is commencing new developments anticipated to generate over 66 gigawatts. Other projects include grid modernization in OH, and a $4 billion hydrogen energy facility in TX.

Portland General Electric Co.

Portland General Electric Co. (NYSE: POR) 

Yield: 4.72%

Portland General Electric Co. was founded in 1888. This utility supplies electricity to nearly 66% of Oregon’s commercial and industrial community and roughly 50% of its residential community. Unless there are legislative changes, Oregon’s strict clean energy requirements require Portland General Electric to cut carbon emissions by 80% by 2030 and 100% by 2040. 

As a result, the company has $1.2 billion of annual capital investment slated for the next 5 years in new solar and battery projects.  The excessive past regulation has resulted in price rate spikes that should be reduced in risk as we advance thanks to electricity demand growth from AI. 

Portland General Electric also has an unbroken 17-year streak of dividend increases.