For generations, utility stocks were only considered a good idea for “orphans and widows,” a term that once referred to utility stocks considered so safe and reliable that they were suitable for even extremely conservative investors, like widows and orphans. Today, while the term itself is outdated, the core idea of low-risk, dividend-paying stocks still makes utilities a popular and defensive investment. Regulated utility companies have highly predictable cash flows, allowing them to pay consistent and often growing dividends. This makes them ideal for income-focused investors and retirees. But now, as demand is growing exponentially bigger due to massive AI data center growth, the Jefferies Energy Equity Research and Strategy team says the new era for the once stodgy sector will usher in a “Golden age of Utilities.”
24/7 Wall St. Key Points:
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Utility stocks with big safe dividends and upside potential could be total retrun home runs
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With all of the major indices at or near all-time highs, stock selection as we head in to the fall will be critical.
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The potential for interest rates to be lowered is another huge positive for the utility sector.
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A funny thing happened in November of 2022 that started a revolution, which many feel will change everything as we previously knew it, in a multitude of categories and ways. The debut of ChatGPT fundamentally changed everything because it made powerful, human-like AI accessible to the public for the first time. Previously, advanced AI was confined to research labs and specialized applications. But ChatGPT’s user-friendly interface turned a complex technology into a viral sensation, sparking a massive investment boom, disrupting established tech companies, and forcing a global conversation about the future of AI. That in turn lit a fire for data center growth and expansion, which in turn is pushing energy use and demand.
In a new research report, the Jefferies Energy research team goes into detail on the massive changes and growth potential companies in the utility sector have for the near-term and longer-term horizons. They noted this in the report:
No quiet summer for data center developers (or investors). Data center developments have been coming fast and furious in recent weeks. Our mega-cap technology Analyst, Brent Thill, expects Big 3 + Meta (NASDAQ: META) & Oracle Corporation (NYSE: ORCL) to spend $417 billion in calendar year 2025 capex, +17% from first quarter estimates and +167% from 2023. The second quarter of 2025 continued the “Golden Age” of utilities as multiple companies had significant progress with data center load forecasts. The second quarter of the calendar year is a shoulder period for most regulated utilities, with relatively limited earnings between the winter and summer months. Companies rarely provide short or long-term guidance/outlook changes traditionally.
The Jefferies report focuses on 11 top companies that they are very positive on for data center utilities and power generation. We screened the list looking for the highest-yielding stocks that still offer solid energy points despite the 13.6% move higher by the Utilities Select Sector SPDR Fund (NYSE: XLU), which is a good barometer for the entire sector.
Why are we covering utility stocks?
History shows that stodgy utility stocks will likely hold their ground much better than high-flying technology stocks, especially those chasing artificial intelligence mania. With a product always in demand and the summer heat still in play, high-yielding utilities may be the best idea now for worried investors, especially as data center demand cranks up the volume for electricity.
Evergy
Evergy Inc. (NASDAQ: EVRG) is an investor-owned energy company serving more than 1.6 million customers across Kansas and Missouri. Lesser-known than some utility stocks, Evergy is a utility holding company.
The company operates primarily through its wholly owned subsidiaries:
- Evergy Kansas Central
- Evergy Metro
- Evergy Missouri West
- Evergy Transmission Company
Evergy Kansas Central is an integrated, regulated electric utility that provides electricity to customers in the state of Kansas.
Evergy Metro is an integrated, regulated electric utility that provides electricity to customers in the states of Missouri and Kansas.
Evergy Missouri West is an integrated, regulated electric utility that provides electricity to customers in the state of Missouri.
Evergy Transmission Company owns 13.5% of Transource Energy, with the remaining 86.5% owned by AEP Transmission Holding Company. Transource is focused on the development of competitive electric transmission projects.
The Jefferies price target is set at $78.
NiSource
While somewhat off the radar, this is another attractive stock for growth and income investors. NiSource Inc. (NYSE: NI) is an energy holding company that operates through two segments: Columbia Operations and NIPSCO Operations.
The Columbia Operations segment, through its wholly owned subsidiary NiSource Gas Distribution Group, provides natural gas to approximately 2.4 million residential, commercial, and industrial customers in:
- Ohio
- Pennsylvania
- Virginia
- Kentucky
- Maryland
It operates approximately 37,200 miles of distribution main pipeline, plus the associated individual customer service lines, and 330 miles of transmission main pipeline.
The NIPSCO Operations segment includes NIPSCO Holdings I and its subsidiaries, including NIPSCO, which has fully regulated gas and electric operations in northern Indiana.
The company has six renewable generation facilities in service:
- Rosewater
- Indiana Crossroads Wind
- Indiana Crossroads Solar
- Dunn’s Bridge I Solar
- Cavalry Solar and Storage
- Dunn’s Bridge II Solar and Storage
The Jefferies target price objective for the shares is set at $48.
Pinnacle West Capital
This company may hold among the best total return potential for shareholders. Pinnacle West Capital Corp. (NYSE: PNW) is an energy holding company that conducts business through its subsidiaries:
- Arizona Public Service (APS)
- El Dorado Investment (El Dorado)
- Pinnacle West Power
The company’s business segment is its regulated electricity segment, which consists of traditional regulated retail and wholesale electricity businesses (primarily electric service to Native Load customers) and related activities. It includes electricity generation, transmission, and distribution.
APS provides electric service to approximately 1.4 million customers. APS is also the operator and co-owner of Palo Verde, a primary source of electricity for the southwest United States.
El Dorado owns debt investments and minority interests in several energy-related investments and Arizona community-based ventures. Palo Verde is a three-unit nuclear power plant located approximately 50 miles west of Phoenix, Arizona.
The Jefferies price target for the stock is posted at $110.
PPL
PPL Corp. (NYSE: PPL) is an energy company headquartered in Allentown, Pennsylvania, in the Lehigh Valley region of eastern Pennsylvania. This utility stock is another top pick at Jefferies, and is perfect now for conservative accounts, and pays a very dependable dividend. PPL is an energy company that provides electricity and natural gas to approximately 3.6 million customers in the United States.
It operates through three segments:
- Kentucky Regulated
- Pennsylvania Regulated
- Rhode Island Regulated
The company delivers electricity to customers in Pennsylvania, Kentucky, Virginia, and Rhode Island; provides natural gas to customers in Kentucky and Rhode Island; and generates electricity from power plants in Kentucky.
The Jefferies price target is set at $42.
Xcel Energy
Serving a large portion of the United States, this stock may hold the biggest upside potential of the four companies. Xcel Energy Inc. (NASDAQ: XEL) is an electric and natural gas delivery company.
The company provides a comprehensive portfolio of energy-related products and services to approximately 3.9 million electric and 2.2 million natural gas customers through four utility subsidiaries,
- NSP-Minnesota
- NSP-Wisconsin
- PSCo
- SPS
The company operates through two segments. Its regulated electric utility segment generates, purchases, transmits, distributes, and sells electricity in:
- Colorado
- Michigan
- Minnesota
- New Mexico
- North Dakota
- South Dakota
- Texas
- Wisconsin
In addition, this segment includes sales for resale and provides wholesale transmission service to various entities in the United States. The regulated electric utility segment also includes wholesale commodity and trading operations.
Its regulated natural gas utility segment purchases, transports, stores, distributes, and sells natural gas primarily in portions of:
- Colorado
- Michigan
- Minnesota
- North Dakota
- Wisconsin
The Jefferies target price is posted at $80.
Four Safe Buy-Rated High-Yield Dividend Stocks Under $10
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Author: Lee Jackson
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