Utilities are is up 20% in 2024. Analysts love these dividend-payers

Utilities, a favorite of retirees for their dividends, have emerged as the top performing sector in the S & P 500 in 2024 – and a few names are among the favorites on Wall Street. The sector, which includes companies such as Constellation Energy and NRG Energy , has surged 20% in 2024 as investors chase names that are tied to powering the data centers behind artificial intelligence. In fact, data centers may need up to 400 terawatt hours of electricity by 2030, according to Mizuho Securities . Bank of America sees yet another tailwind for utilities: The sector is a way to play falling interest rates. “Utilities and Real Estate dividends just got that much more compelling,” wrote equity and quant strategist Savita Subramanian in a report Monday. She noted that dividend yields from most utilities and real estate investment trusts will only grow more attractive as the firm’s economists now anticipate interest rates will fall to 3.25% by 2025 from the current fed funds rate of 5.25% to 5.50%. To that end, CNBC Pro used FactSet data to screen the S & P 1500 utilities sector, looking for companies that meet the following criteria. Covered by at least 10 analysts. Buy ratings from at least 55% of the Wall Street pros that cover them. A total return – the stock prrice plus the value of reinvested dividends – of at least 10% in 2024. CMS Energy made the list. About 56% of the analysts covering the stock rate it a buy or overweight. The stock offers a dividend yield of 3.0% and has a 2024 total return of nearly 23%. The Jackson, Michigan-based utility posted second-quarter adjusted earnings of 66 cents per share, topping analysts’ estimates of 62 cents a share, according to FactSet. On a late July earnings call, CEO Garrick Rochow reported “a lot of interest in both manufacturing and data centers in the state.” “There continues to be strong interest in the state, both the hyperscalers and also we’re seeing some growth in, what I call, midscalers from a data center perspective,” he added. The company is also participating in the electrification theme. In July, Consumers Energy, a subsidiary of CMS, announced a plan to power 1,500 new fast charging locations for electric vehicles by the end of 2030. NextEra Energy is also on the list, with about 65% of analysts polled by FactSet rating it a buy or overweight. Year to date, the stock has a total return of nearly 38%, and it offers a dividend yield of 2.5%. Morgan Stanley highlighted Juno Beach, Florida-based NextEra in a late-August report after the utility reported adjusted earnings in the second quarter that topped expectations. “Management noted that backlog with data center customers now represents 4 [gigawatts] vs. 3 GW in 1Q24,” the firm noted. “A highlight for the company was 860 [megawatts] of the newly added backlog were from Google to support their data center needs.” Further, Morgan Stanley analyst David Arcaro expects that data center deals will offer higher pricing and returns for NextEra. Other names that made CNBC Pro’s list include Allentown, Penn.-based PPL , which has a 2024 total return of 22% and a dividend yield of 3.2%, and San Diego’s Sempra , which has a dividend yield of 3% and a total return of nearly 14% year to date. —CNBC’s Fred Imbert contributed reporting.