Demand for electricity has shifted into a higher gear, which should be a huge benefit to utilities like Dominion Energy (D 0.30%) and NextEra Energy (NEE +0.11%). Both are well-positioned to benefit in their own ways. However, one stands out because of its history of successful business execution.
Dominion Energy has a 4.2% yield for a reason
Dominion Energy's dividend yield is 4.2%, which is well above NextEra Energy's 2.7% and the average utility's yield of just under 2.6%. The interesting thing about Dominion's lofty yield is that it comes from a regulated utility that operates in one of the largest data center markets in the world. Demand for data centers is exploding thanks to investments in artificial intelligence.
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What has investors worried is Dominion Energy's history of falling short of its own plans. At one point, it called for 10% dividend growth, backed by a business diversified across regulated utilities and pipelines. It cut the dividend after it sold the pipelines. Then it promised dividend growth from a new base, but that was called off, too, when the company sold its natural gas utility operations. Dominion is now just a regulated electric utility and has been working to return to dividend growth, but investors are realistically taking a "show me" attitude, given the history.
NYSE: D
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NextEra Energy is slowing down, but still hitting its goals
NextEra Energy is pretty much the exact opposite when it comes to execution. When the company says it will grow its dividend 10%, it does. The foundation of the business is a large, regulated utility business in Florida. The growth engine is the company's renewable power business. NextEra Energy is one of the largest solar and wind power producers in the world.
NYSE: NEE
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Given NextEra's strong execution, it is probably the better option. However, there is a caveat. According to management, the company's dividend growth is going to slow down from 10% in 2026 to 6% in 2027 and 2028. Given the history here, investors should probably believe what management says. Still, 6% dividend growth is solidly above the historical inflation rate, and NextEra's yield is above average for a utility.
Trust is vital when you buy a dividend stock
You need to feel confident that you will receive your dividends if you are using them to pay for living expenses. Dominion Energy has let investors down by failing to meet its own goals. NextEra Energy has a lower yield, but its history shows you can trust management's guidance. For most dividend investors, NextEra is likely to be the better choice despite its lower yield.
