Even the most advanced AI technology needs one basic thing to run: electricity.
From simple AI-powered applications to massive data centers running complex models, electricity is the common denominator. And as AI continues to expand, demand for reliable power is creating opportunities beyond the usual semiconductor stocks.
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For income-focused investors, that puts utility companies like NextEra Energy (NEE) and Duke Energy (DUK) in an interesting position. Both stand to benefit from growing electricity demand while offering shareholders a steady stream of dividends.
So, which one offers the better investment today?
NextEra Energy Stock: Powering Homes and Businesses
Screenshot courtesy of www.barchart.com NextEra Energy is famous as an electricity provider, but it is far more than that. Through its Florida Power & Light segment, the company supplies electricity to about 12 million people in Florida and beyond. The company also has large-scale power generation and storage projects and initiatives.
NextEra was also recently selected to develop a $22.3 billion energy infrastructure project in Texas to meet growing data-center demand, indirectly benefiting from AI growth.
Duke Energy Stock: A Major Electricity Provider
Screenshot courtesy of www.barchart.com Duke Energy is another major utility company, supplying electricity to 8.7 million customers across six states. It focuses largely on regulated electricity services, providing relatively predictable earnings.
Similar to NextEra, Duke is also preparing for growing AI electricity demand. But unlike NextEra, Duke recently reached an agreement with tech giants, including Amazon, Google, Meta, and Microsoft, setting new terms for serving large data centers in North Carolina. However, the agreement still awaits regulatory approval.
Both companies seem well-positioned for AI growth, but how much of that actually reflects in their financials?
NEE vs. DUK: Financial Performance and Valuation
I used Barchart's Stock Comparison Tool to capture a snapshot of these data:
Screenshot courtesy of www.barchart.com In its latest reported quarter, NextEra takes an early lead, with sales up 1.6% year over year to $8.1 billion versus Duke’s 1.1% increase to $7.6 billion.
NextEra widened that gap in net income, with earnings up 95.9% to $4.8 billion, compared with Duke, which rose 11.0% to $1.1 billion. Much of NextEra’s jump came from hedge gains, though. On an adjusted basis, its earnings per share grew 9.7%.
That’s in line with EPS growth versus the previous year, where NextEra grew 9.7%, and Duke actually came out ahead at 14.4%. So far, it looks close, but the long-term story is different. NextEra leads by a wide margin in five-year earnings growth at 60.6%, while Duke is at 23.2%. The same story holds for profit margin, with NextEra at 24.9% versus Duke’s 15.4%.
Meanwhile, both companies have identical debt-to-equity ratios of 1.6, which suggests similar financial leverage.
Turning to valuations, NextEra’s stronger numbers come at a premium, but both stocks trade above the sector average of roughly 17x. NextEra sits at 21.2x forward earnings, while Duke is at a lower 19.1x.
While NextEra looks better, Duke could win some ground back on one more metric: dividends.
NEE vs. DUK: Which Utility Stock Pays More Dividends?
For income-focused investors, here's the spicier part of the story
NextEra pays shareholders $2.49 per share per year, for a yield of about 2.9%. It has a dividend payout ratio of 60.5%, suggesting that a little over three-fifths of its earnings go to investors, leaving the rest for reinvestment.
Here’s where Duke slightly tips the scales: it pays a forward annual dividend of $4.34, which translates to a yield of about 3.4%. Its 63.05% dividend payout ratio is slightly higher than NextEra's, but it still leaves a reasonable portion of earnings available for reinvestment.
While Duke pays more today, the difference between these two companies isn't exactly substantial. So, how does Wall Street view these two?
NEE vs. DUK: Wall Street Analyst Ratings and Price Targets
This is what Wall Street has to say:
Screenshot courtesy of www.barchart.com A consensus among 20 analysts rates NEE stock a “Moderate Buy”, with upside of as much as 24% if it manages to hit its high target prices.
Screenshot courtesy of www.barchart.com And DUK stock has the same “Moderate Buy” consensus from 24 analysts, though its highest price target suggests a more modest 10% upside.
Final Verdict: Is NextEra or Duke Energy the Better Dividend Stock?
The future looks bright for both NextEra and Duke Energy with the growing electricity demand and scaling AI data centers.
Duke offers a lower, reasonable price with a slightly higher yield, while NextEra has stronger overall financials.
Personally, I'd still go with NextEra. Its stronger financial track record makes a compelling case, and the multiples aren't substantial enough to outweigh that advantage. But ultimately, it comes down to whether investors value a higher dividend today or stronger long-term growth potential tomorrow.
On the date of publication, Rick Orford did not directly have a position in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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