A 300% Increase in AI Data Center Demand Will Propel Growth for These 3 High-Yield Stocks
Artificial intelligence (AI) isn't technically a living thing, even though it can seem like one at times. The truth is, if you stop providing electricity to the hardware that supports any AI system, it ceases to operate. And that's the big story behind the growth opportunity ahead for NextEra Energy (NYSE: NEE), Dominion Energy (NYSE: D), and Brookfield Renewable (NYSE: BEP)(NYSE: BEPC).
Each of these high-yield stocks offers investors a way to profit from growth in the AI space without having to try to pick an AI winner.
NextEra Energy is growing its dividend 10% a year
At its current share price, NextEra Energy has a 3.2% dividend yield. That compares to a 1.3% average yield for stocks in the S&P 500 index and the 2.9% yield of the average utility. You can find utilities with higher yields, but NextEra's is relatively attractive. The real story here, however, is dividend growth.
Management has boosted NextEra's dividend at a 10% annualized clip over the past decade, and it expects to continue doing so at about that rate over the next couple of years. Its payout growth has been supported by the utility's steadily growing regulated business in Florida and, more to the point, its fast-growing clean energy business. The clean energy business sells power to other companies under long-term contracts. Large companies are increasingly looking for clean energy solutions as they expand, including the technology companies that are powering the AI revolution. And AI-related electricity demand in the United States is projected to increase by 300% over the next decade or so.
Dividend growth investors looking for a way to tap into the AI sector while still maximizing yield will want to do a deep dive on NextEra Energy today.
Dominion Energy is getting its business on the right track
Dominion Energy is a turnaround story, and the stock could be appealing to investors who don't mind taking on just a little extra risk for a lot more yield. The regulated electric utility's yield at the current share price is around 4.7%, which is well above the industry norm. The risk here, however, is pretty low, given the company's government-granted monopolies in the regions it serves.
One of those regions, Virginia, happens to be among the largest data center markets in the world. Add in a large offshore wind farm Dominion is building in the state, and it seems well-positioned to take advantage of the added demand that AI will create. The problem here is that the utility is currently focused on strengthening its balance sheet, which in part entails reducing its dividend payout ratio to bring it back in line with its peers.
Basically, expect dividend growth at Dominion Energy to be on hold for at least a couple of years. However, investors who buy today will get a well-above-average yield, which seems ample compensation for income seekers as they await the stock's return to dividend growth in the future.
Brookfield Renewable is a global play
At the current share price, Brookfield Renewable Partners yields 6.2%. The company also has a roughly identical corporate share class with a lower 5% yield, a function of the higher demand for those shares. As the name implies, Brookfield Renewable invests in renewable power assets such as hydroelectric, solar, and wind, as well as battery storage and nuclear power. Unlike NextEra and Dominion, Brookfield Renewable operates on a global scale, allowing it to take advantage of AI and data center demand wherever it is popping up.
For example, Brookfield Renewable has inked a deal with Microsoft to provide the tech giant with 10.5 gigawatts of new renewable power over the next decade. The purpose of the deal is specifically to support Microsoft's data center expansion. This shows what Brookfield Renewable's globally diversified portfolio can support. Investors should take a serious look at the high-yield opportunity here.
AI is a growth driver for electricity demand
Wall Street is excited about artificial intelligence and its rapid development, but many investors are focusing specifically on the direct AI plays. It's always tough to accurately pick long-term winners in fast-changing emerging markets. However, it is pretty clear that no matter which AI companies wind up the big winners, they will all need reliable access to growing supplies of electricity. And that means that high-yield stocks like NextEra Energy, Dominion Energy, and Brookfield Renewable are likely to be winners from the AI revolution, too.
Should you invest $1,000 in Dominion Energy right now?
Before you buy stock in Dominion Energy, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Dominion Energy wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $657,385!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $842,015!*
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