Utilities – a staple of retirees’ portfolios for steady dividends – emerged as a hot corner of the market in 2024, and UBS highlighted the group as a “most-liked” sector in August. Publicly traded utility stocks are up nearly 19% in 2024, trailing only information technology and communications services as investors see utilities as another way to ride the artificial intelligence trend. What’s more, dividend yields will be more attractive if Treasury yields fall, and debt costs will become less burdensome if the Fed cuts interest rates, as expected. Mount GSPU YTD S&P 500 Utilities Sector in 2024 In the third quarter, utilities were out, up 10%, through Friday. That compares to a 0.5% advance from technology and a decline of more than 2% for communication services. Electricity demand is expected to grow by 20% by 2030, with artificial intelligence data centers adding about 323 terawatt hours of power demand, according to an April analysis from Wells Fargo. To play into the trend, UBS strategist James Dobson called NextEra Energy the “top pick” among utilities, according to a report last week from the bank’s Head of Investments Office, Global Wealth Management. Shares of NextEra, the parent of Florida Power & Light and NextEra Energy Resources, rose 31% in 2024 and yielded 2.6%. “With its distinct competitive advantage in US renewable development and attractive pricing, we believe NEE can outperform the sector over the next 12 months,” Dobson wrote. He noted that the company is “very well positioned” to benefit from the surge in power demand associated with AI data centers, reshoring and electrification. Indeed, NextEra Energy Resources, which operates wind and solar projects, added more than 3,000 megawatts of new power and storage projects to its backlog in the second quarter, including an agreement with Google to supply 860 megawatts to data centers, said NextEra CEO John Ketchum. on the July 24 earnings call. UBS isn’t the only one recommending NextEra Energy. Sixteen of the 23 analysts covering the stock rate the stock as a buy or strong buy, according to LSEG, but the consensus price target only sees about 3% from current levels. Dobson and his team dropped Vistra, which gives power in Texas, from the firm’s “top choice” list, although it continues to be labeled “most preferred.” Vistra shares have rocketed nearly 123% in 2024, but were almost flat in the third quarter. The company pays a measly dividend yield of 1%. “As an independent power producer, VST has fewer defensive attributes than other regulated utilities in the sector,” UBS said in its report. Independent power producers are not public utilities, so they are less regulated. Instead, they generate power to sell to other customers, including other utilities and end users. However, the stock is highly favored on Wall Street, with roughly 92% of analysts covering Vistra rating it as a buy or strong buy, according to LSEG. The analyst consensus price target calls for almost 29% upside from the current price.
This high-flying sector rose 10% in the third quarter. How to play
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