We recently published a list of 10 Best Utility Dividend Stocks To Buy. In this article, we are going to take a look at where Constellation Energy Corporation (NASDAQ:CEG) stands against other best utility dividend stocks to buy.
Utilities are typically viewed as defensive investments. Unlike growth stocks, which are often tied to economic cycles, utilities provide essential services that are in constant demand, such as electricity, natural gas, and water. This makes them relatively stable performers during economic downturns. Despite experiencing a challenging year in 2023, the utilities sector is well-positioned for growth in 2024 and beyond.
So far, the utilities sector has been one of the best-performing sectors. There are a few primary factors driving the recent outperformance of the utilities sector. First, the market is anticipating potential interest rate cuts by the Federal Reserve. Given their relatively low-risk profile, utilities are often seen as bond proxies. As bond yields decline, the attractive dividend yields offered by utilities become more compelling.
Second, the growing demand from data centers powering artificial intelligence and cryptocurrency is significantly increasing electricity consumption. The International Energy Agency estimates that electricity usage by these sectors could rise from 460 terawatt-hours in 2022 to over 1,000 terawatt-hours by 2026, rivaling Japan’s total electricity consumption.
Read Also: 8 Best Utilities Stocks to Ride the AI Boom in 2024
Electrification Trends Across Key Sectors
The growth in the electric power industry is also fueled by the ongoing electrification of transportation, buildings, and industry sectors. Within the transportation segment, electricity demand projections vary widely based on EV adoption rates. While estimates range from a 16% to a 36% compound annual growth rate over the next decade, recent developments suggest a potential for higher growth. The increasing affordability of EVs, coupled with government incentives like tax credits, is driving rapid adoption.
In the buildings sector, the transition to electric heat pumps and water heaters in residential and commercial buildings is increasing electrification. Demand within this segment is projected to grow at a rate of approximately 0.5% to 0.9% annually through 2035, with the potential to reach as high as 3,700 terawatt-hours per year.
The industrial sector might not be as fast to electrify as the buildings and transport sector. Demand is forecasted to increase at a rate of 0% to 0.6% annually through 2035, reaching over 1,070 terawatt hours. Given that only 13% of the sector’s energy needs are currently met by electricity, there is significant potential for further electrification to align with decarbonization goals.
The sector’s long-term prospects are even more promising. The global transition from fossil fuels to renewable energy sources is accelerating, and utilities are at the forefront of this shift. In fact, The US Energy Information Administration (EIA) forecasts a significant increase in utility-scale solar installations, with a projected more than doubling to a record-breaking 24 gigawatts (GW) in 2023. This growth is expected to continue in 2024, with an additional 36 GW of solar capacity anticipated. As a result, the renewable energy share of electricity generation is projected to rise from 22% in 2023 to nearly 25% in 2024.
Our Methodology
To compile our list of the best utility dividend stocks, we conducted an analysis of our database, covering over 900 hedge funds as of Q2 2024. Our focus was specifically on dividend-paying utility companies, including diversified utilities, independent power producers, and regulated gas, electric, and water utilities. From this list, we identified the 10 stocks with the highest number of hedge fund investors as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close up of a wind turbine producing electricity as the sun sets.
Constellation Energy Corporation (NASDAQ:CEG)
Number of Hedge Fund Holders: 71
Constellation Energy Corporation (NASDAQ:CEG), a Fortune 200 company based in Baltimore, is a leading provider of clean, carbon-free energy solutions. The company’s portfolio, which is nearly 90% carbon-free, includes hydro, wind, solar, and nuclear power, capable of powering approximately 16 million homes.
In July, Constellation Energy Corporation (NASDAQ:CEG) declared a quarterly dividend of $0.353 per share on its common stock. According to the Q2 2024 results, net income was $2.58 per share and operating earnings were $1.68 per share, both of which surpassed the Q2 2023 figures.
Constellation Energy Corporation (NASDAQ:CEG) also raised its earnings-guidance range to $7.60-$8.40 per share due to strong performance in both wholesale and retail markets, along with ongoing benefits from managing market volatility.
Here’s what ClearBridge Investments said about Constellation Energy Corporation (NASDAQ:CEG) in its Q1 2024 investor letter:
“On a regional basis, the U.S. and Canada was the top contributor for quarter, with U.S. electric utility Constellation Energy Corporation (NASDAQ:CEG) and U.S. rail operator CSX the lead performers. Constellation Energy is primarily a nuclear generation company and is the largest producer of carbon-free electricity in the U.S., serving states including New York, Illinois, Maryland, Pennsylvania and New Jersey. The company’s combined generation capacity is more than 32 GW and 90% of annual output is carbon free. Constellation has been a beneficiary of AI and subsequent power demand as its 24/7 base load nuclear generation can get premium contracts.”
Coatue Management was the leading hedge fund investor in Constellation Energy Corporation (NASDAQ:CEG) as of Q2 2024. The hedge fund raised its stake in the company by 140% over the last quarter.
Overall, CEG ranks 5th on our list of Best Utility Dividend Stocks To Buy. While we acknowledge the potential of CEG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CEG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
