Investing in AI by proxy but also shielding from inflation and recession. As the cherry on top, utility stocks can be stable income streams via dividends.
Since time immemorial, desirable features have had a cost. For example, Bitcoin’s cost in securing the network comes in computing power expressed in hashrate, which is harnessed from energy. Likewise, generative AI may be revolutionary, but it demands great computing power.
For example, when a user asks an AI model to generate a high-quality image based on a text prompt, the image generation exerts 1.35 kWh of power. According to research from Carnegie Mellon University and Allen Institute for AI, this means that text output alone equates to 16% of a fully charged smartphone.
On the higher end of less optimized AI models generating images, they exert energy equivalent to 950 smartphone charges or 11.49 kWh. The most efficient AI models take one smartphone charge per image.
For investors, it then becomes clear that AI investing also involves utility companies, AI chip companies like Nvidia (NASDAQ:NVDA) and AMD (NASDAQ:AMD), and software companies like Microsoft (NASDAQ:MSFT) or Google-parent Alphabet (NASDAQ:GOOG). Over the last six months, the S&P 500 Utilities (Bloomberg: S5UTIL) had 13% gains.
Although the S&P 500 (SPX) outpaced it by 23.3% for the same period, utility stocks are resistant to both inflation and recession, or stagflation. After all, their essential nature allows them to offset consumer costs.
And some utility stocks have generous dividend yields.
1. Entergy Corporation: 4.22% dividend yield at $4.52 annual dividend per share
Prominent in the Southern US, Entergy (NYSE:ETR) provides electricity for residential and commercial sectors. In the 2023 performance report, the company listed 3 million customers having access to Entergy’s 23,879 MW infrastructure.
Compared to $1.1 billion net income in 2022, Entergy more than doubled it in 2023, at $2.3 billion. The company paid dividends to shareholders via 918,193 common stock shares, up 9% from 2022.
For the eighth time, Entergy was also named to The Civic 50 list of top community-oriented companies and as the 2023 Utilities Sector Leader. Over the last six months, ETR stock gained nearly 16% value.
At the present price of $107.17, ETR shares are 18.7% above the 52-week low point. Per Nasdaq, the average ETR price target twelve months ahead is $116.33. At press time, the low estimate of $107 aligns with the present price, making it a solid entry point.
2. Allete, Inc: 4.75% dividend yield at $2.82 annual dividend per share
This energy company operates in the Upper Midwest region of the US, headquartered in Duluth, Minnesota. In addition to electricity, Allete (NYSE:ALE) also provides water supply services and renewable projects such as Cisco (NASDAQ:CSCO) Wind Energy and Lincoln Heights.
This is part of a clean energy drive worth $4.3 billion over the next five years. Allete’s earnings for the full year 2023 were in line with elevated guidance, returning $4.30 per share on $247.1 million net income. This is up from $189.3 million in 2022, at $3.38 per share.
Over the last six months, ALE stock is up 11.81%. At $59.40, ALE shares are up 17% from their 52-week low of $49.29. Per Nasdaq, the average ALE price target is slightly lower than the current level at $58, with the low estimate not far behind at $57.
This indicates that the company is presently undervalued, but the market has already adjusted for this as AI stocks become more prominent.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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