Utilities are surging in 2025. Wall Street likes these dividend-paying stocks

CNBC

2 days ago

Utilities are emerging as a hot play in 2025 as investors take notice of their role in powering the artificial intelligence movement – and many of the names also happen to pay attractive dividends. As the broader S & P 500 retreated on Tuesday, the Utilities Select Sector SPDR Fund (XLU) touched a fresh record. Utilities are the second-best performing sector in the S & P 500 in 2025, up more than 14% and outperforming tech's roughly 13% advance. The outperformance is greater still including utilities' 2.8% dividend yield. XLU 5D mountain The Utilities Select Sector SPDR Fund (XLU) in the past five days. "For the power sector we expect significant tailwinds in the second half of 2025," said Bank of America analyst Ross Fowler in a late June report, pointing to the likelihood of continued growth in electricity demand. "Despite significant positive returns so far this year, we continue to believe the power stocks have data center related catalysts across the second half." In addition, dividend-paying stocks are looking more favorable for investors who are on the prowl for income, anticipating the day when the yield on risk-free Treasurys declines. To that end, CNBC Pro used FactSet data to screen for names within the XLU ETF that have buy or overweight ratings from at least 51% of the analysts covering them, and a dividend yield of at least 1.5%. PPL Corp. turned up on CNBC's screen. Once known as Pennsylvania Power & Light, the utility's shares are up 10% in 2025, and the stock pays a current dividend yield of about 3%. The provider of power and natural gas in Pennsylvania, Kentucky, Rhode Island and Virginia reported adjusted earnings of 32 cents on revenue of $2.03 billion in the second quarter against consensus estimates of 39 cents a share and $1.81 billion in revenue. Nearly 59% of the analysts covering the PPL rate it buy, according to FactSet. Jefferies analyst Paul Zimbardo stuck with the stock, reiterating a "buy" rating and lifting his price target on Monday by $2, to $42, suggesting 16% upside from Monday's close. "PPL is one of our top utility ideas, offering under-appreciated regulated generation data center exposure with premium core utilities overall," he said. "PPL has visibility to 8% EPS growth with conservative assumptions while preserving an above-average balance sheet." The icing on the cake is a recently announced joint venture between PPL and Blackstone Infrastructure to build natural gas generation to power data centers. "It is clear that this is an early stage partnership, but there is real option value here," Zimbardo said. NiSource also turned up on the screen. More than seven out of 10 analysts covering the Indiana-based utility recommend it as a buy or overweight, according to FactSet. Shares are up 16% in 2025, and the stock pays a current dividend in 2.6%. Fowler of Bank of America reiterated a buy rating on NiSource in late June following meetings with top brass. "NI is fielding active interest from hyperscalers seeking sites in Northern Indiana, where fiber and transmission access are gating factors," the analyst wrote. "A large fiber network from Chicago through northwest Indiana enhances competitiveness." "Paired with a solid dividend and visible [free cash flow] growth, we view NI as a defensive name with embedded optionality from growth upside," Fowler said. Finally, Xcel Energy turned up on our screen. The Minneapolis-based stock has a following, with 65% of analysts rating it a buy or overweight, according to FactSet. Shares are up 9% in 2025, and the stock pays a current dividend yield of about 3.1%. Anthony Crowdell of Mizuho last week stuck with his "outperform" rating after Xcel posted second-quarter results that topped the Street's estimates. "The company now has visibility into $15B+ of additional [capital expenditures] not included in its current base plan," he said. "This includes generation capex from resource plans across its service areas, transmission and data center demand." With the increase in capital spending built into the rate base, "the company reaffirmed its long-term EPS growth rate of 6%-8% and continue to expect to be in the upper half of the range," Crowdell added. — CNBC's Michael Bloom contributed reporting.