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Investment Analysis: Top Utility Stocks for Dividend-Focused Investors in 2025

The utilities sector, long regarded as a stable but unexciting investment, has emerged as a standout performer in 2025, driven by surging electricity demand from artificial intelligence (AI) data centers and attractive dividend yields.

The Utilities Select Sector SPDR Fund (XLU) has risen over 14% this year, outpacing the technology sector’s 13% gain, with a 2.8% dividend yield further enhancing its appeal.

As investors seek income-generating opportunities amid expectations of declining Treasury yields, utilities offer a compelling blend of defensive stability and growth potential.

Here are our top three picks to benefit from utilities:

PPL Corp: A Resilient Utility with Data Center Upside

PPL Corp, formerly Pennsylvania Power & Light, is a regulated utility providing electricity and natural gas across Pennsylvania, Kentucky, Rhode Island, and Virginia.

Its stock has gained 10% in 2025, offering a dividend yield of approximately 3%.

In its second-quarter results, PPL reported adjusted earnings of 32 cents per share on $2.03 billion in revenue, missing consensus estimates of 39 cents per share but exceeding revenue expectations of $1.81 billion.

Despite the earnings miss, analysts remain optimistic, with 59% rating the stock a buy, according to FactSet data. Jefferies analyst Paul Zimbardo recently reiterated a “buy” rating, raising his price target to $42, implying a 16% upside from recent levels.

PPL’s appeal lies in its exposure to the growing demand for data center power, particularly through a strategic joint venture with Blackstone Infrastructure to develop natural gas generation for data centers. This partnership positions PPL to capitalize on the AI-driven energy surge, which analysts like Zimbardo describe as offering “real option value.”

PPL’s projected earnings per share (EPS) growth of 8% is supported by conservative assumptions, and its above-average balance sheet provides financial stability. The company’s regulated operations ensure predictable cash flows, supporting its consistent dividend payments. However, risks include regulatory hurdles and potential volatility in natural gas prices, which could impact profitability.

NiSource: Defensive Strength with Growth Optionality

NiSource, an Indiana-based utility, has seen its shares climb 16% in 2025, outperforming many peers in the XLU ETF. The stock offers a dividend yield of 2.6%.

Over 70% of analysts covering NiSource rate it a buy or overweight, reflecting strong Wall Street confidence. Bank of America’s Ross Fowler reiterated a buy rating in June, citing NiSource’s competitive position in Northern Indiana, where access to fiber networks and transmission infrastructure makes it attractive to hyperscalers (large-scale data center operators).

The company is fielding interest from major tech firms seeking data center sites, enhancing its long-term revenue outlook. Fowler notes NiSource’s “visible free cash flow growth” and “embedded optionality” from potential data center deals, which could drive upside beyond its core utility operations.

The company’s regulated business model ensures stable earnings, supporting its dividend payments, which have grown steadily. However, challenges include execution risks in securing large-scale data center contracts and potential regulatory constraints on rate increases.

Xcel Energy: Capital Investment Fuels Long-Term Growth

Xcel Energy, based in Minneapolis, has gained 9% in 2025 and offers a dividend yield of 3.1%.

The stock enjoys strong analyst support, with 65% of analysts rating it a buy or overweight.

Xcel’s second-quarter results exceeded expectations, prompting Mizuho analyst Anthony Crowdell to maintain an “outperform” rating.

The company’s visibility into over $15 billion in additional capital expenditures—not included in its current base plan—underscores its growth potential. These investments target generation, transmission, and data center demand, positioning Xcel to benefit from the AI energy boom.

Xcel’s reaffirmed long-term EPS growth rate of 6-8%, with expectations to hit the upper end, signals confidence in its capital allocation strategy. The company’s increased capital spending is integrated into its rate base, ensuring stable returns through regulated revenue streams.

Xcel’s focus on renewable energy and grid modernization further enhances its appeal, aligning with broader sustainability trends. Risks include regulatory delays and rising interest rates, which could increase borrowing costs for capital-intensive projects.

Conclusion

The utilities sector’s 2025 surge reflects its critical role in powering AI data centers, with demand projected to reach 400 terawatt hours by 2030,. This trend, coupled with expectations of falling interest rates, enhances the attractiveness of dividend-paying utilities.

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