If you want to invest in the artificial intelligence (AI) industry but don't want to get overexposed to technology stocks, then energy is likely your best bet.
AI is hungry for power -- very hungry. According to the MIT Technology Review, data centers consume 4.4% of all energy generated in the U.S. The report further states that by 2028, AI alone could end up consuming as much electricity in a year as 22% of all households in America put together.
The bottom line is this; we need more power.
And it just so happens, many energy companies also pay a solid dividend. These are three of the best in order of ascending dividend yield.
Image source: Getty Images.
Profits, written in the stars
Baltimore-based Constellation Energy (CEG +2.05%) is both the largest nuclear power producer in the United States and the largest clean energy provider, responsible for about 10% of America's clean energy.
The company is a slow and steady grower with its revenue growing at a compound annual growth rate (CAGR) of 3.14% over the past three years. Constellation runs a gross profit margin of 20.13% and a net income margin of 11% and it pays a relatively small dividend that yields 0.5% at current prices. However, it has grown that dividend for three years running.
What's more, the company has partnered with Microsoft to resurrect the Three Mile Island nuclear plant in Pennsylvania specifically to power Microsoft's data centers in the area. The deal will help Constellation expand its nuclear capacity with a new plant capable of selling 835 megawatts of electricity and locks in Microsoft for 20 years as a long-term buyer of a portion of that power. Constellation expects the deal will spur its annual base earnings per share (EPS) to a growth rate of 10%-13% through 2030. Constellation has a strong hand and it's playing it well.
NASDAQ: CEG
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New energy for the next era
Based in Florida, NextEra Energy (NEE +0.23%) is another major green energy provider in the United States. It operates nationwide and of its 76-gigawatt capacity, 65% of it is renewable (57%) or nuclear (8%).
And, like Constellation, NextEra has been tapped by a tech giant to power its data centers. Alphabet has partnered with NextEra to bring Iowa's Duane Arnold Energy Center back online to power its data centers in the area. This deal will work similarly to Constellation's with Microsoft. NextEra will expand its nuclear fleet and lock in Alphabet as a customer for 25-years. The likely deal contributed to NextEra setting an 8% EPS CAGR through 2035.
This is a faster-growing company than Constellation with a three-year revenue CAGR of 9.85% and better profitability with a gross margin of 62% and a net income margin of 24.73%.
It pays a dividend that yields 2.71% at current prices and it has grown that dividend for 30 years running with a 10% growth rate over the past five years. I only expect that to grow faster with electrical demand on the rise.
NYSE: NEE
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The Duke
While Duke Energy Corporation (DUK +2.21%) doesn't have a big tech partner like NextEra and Constellation, it is in an incredible location for an energy company. Most of Duke's facilities -- nuclear, renewable, and fossil fuel -- are located in North and South Carolina.
That means they're sandwiched between Virginia and Georgia, the No. 1 and No. 3 states for new data centers. There are nearly 3,000 new data centers being built in America right now, and 595 of them are in Virginia alone. Virginia alone expects to see its energy demand grow 153% by 2040 and it is attempting to buy electricity from neighboring states like Maryland to meet the state's surging needs.
NYSE: DUK
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Duke is positioned to capitalize on that big-time as North Carolina is connected to the same grid as Virginia and Virginia has now surpassed California as the largest energy importing state in the country. That means major secular demand and growth is on the horizon for Duke from the Virginia market.
That has contributed to Duke's three-year revenue CAGR of 5.29%, its gross margin of 52.4%, and its net margin of 15.97%. It's also why I don't see Duke's 15-year dividend growth streak stopping anytime soon, and it's a dividend that already yields 3.57%.
That makes this Duke a rather appealing prospect at present.
