Better Utility Stock: American Electric Power vs. NextEra Energy
Key Points
The utility sector is attracting investors due to a sharp increase in electricity demand, driven by AI data centers.
American Electric Power and NextEra Energy are two utility operators that offer reliable dividend payments.
American Electric builds out vital power grid infrastructure, while NextEra is focusing on renewable energy.
- 10 stocks we like better than American Electric Power ›
The utility sector is gathering steam as investors turn to the industry amid booming electricity demand for modern artificial intelligence (AI) data centers.
Utilities are typically boring stocks prized for their stable growth and dividends but are becoming growth plays as investors price in the rapid rise in electricity demand. According to Bank of America research, electricity demand could grow at a rate five times faster annually over the next decade than over the previous decade.
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Two top electric utility stocks to consider against this backdrop are American Electric Power (NASDAQ: AEP) and NextEra Energy (NYSE: NEE). Here's which one is a better buy today.
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American Electric Power's electricity transmission advantage
American Electric Power is a regulated utility operating across 11 states, primarily in the Midwest and South. Its primary focus is on generating, transmitting, and distributing power, and it owns the largest electricity transmission network in the United States.
The company has a near-monopoly on 765-kilovolt (kV) infrastructure, the highest voltage used for commercial electricity transmission in North America. This helps make it a preferred utility partner for developers and large industrial customers who need significant amounts of reliable power. In Ohio, the company is deploying 765 kV infrastructure to support a 10-gigawatt data center campus.
President and CEO William Fehrman said that the company is currently experiencing a "generational load growth phenomenon," driven by the rapid growth in data centers. The company has secured 56 gigawatts of contracted load additions in key regions like Ohio and Texas. In Ohio, it has moved 5.6 GW of data center load into binding contracts, which shifts the risk away from the utility and onto technology companies.
American Electric Power is a steady-growth company with a strong advantage in its electricity transmission infrastructure. The company is executing a massive $72 billion five-year capital plan to expand its transmission and distribution networks.
NextEra combined stability and growth with its energy assets
NextEra Energy owns Florida Power & Light (FPL), the largest regulated utility in the United States. But that's just one aspect of its business; it also owns NextEra Energy Resources, the world's largest producer of wind and solar power. This diversified business provides NextEra with stable, rate-regulated earnings in one of the largest regions in the U.S., along with upside potential from the growing demand for renewable energy.
In March, it announced federal backing for the development of up to 10 gigawatts of natural gas power to ensure reliable grid service with surging AI power demand. In addition, NextEra is investing $90 billion to $100 billion through 2032 to support Florida's growing population and another $35.6 billion through 2030 to expand its clean energy portfolio and transmission assets.
Which stock is right for you?
American Electric Power and NextEra Energy are two utility stocks that could be solid additions to your portfolio today. The stocks currently yield 2.8% and 2.7% and have raised their annual payouts for 16 and 32 consecutive years, respectively.
For investors bullish on the renewable energy transition and its upside potential, you should buy NextEra Energy. However, if you want to bet on the growth of power infrastructure in regions where the data center build-out is accelerating, American Electric Power is the stock for you.
Should you buy stock in American Electric Power right now?
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Bank of America is an advertising partner of Motley Fool Money. Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool has a disclosure policy.
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