3 Energy Stocks Yielding Over 4.5% to Cash in on the AI Power Boom
Elon Musk is known for making bold statements. For example, the two data centers he’s setting up in Tennessee are called Colossus I and Colossus II. What’s notable for energy investors is that these artificial intelligence-focused data centers are powered by natural gas, much to the ire of nearby residents due to the gas turbines’…
Elon Musk is known for making bold statements. For example, the two data centers he’s setting up in Tennessee are called Colossus I and Colossus II. What’s notable for energy investors is that these artificial intelligence-focused data centers are powered by natural gas, much to the ire of nearby residents due to the gas turbines’ noise and pollution concerns.
But the power has to come from somewhere, which is why investors will likely find high-yield midstream giants like Enterprise Products Partners (NYSE: EPD) and Enbridge (NYSE: ENB) of interest. However, even if you don’t want to invest in carbon fuels, you can still find high-yield options like Brookfield Renewable Partners (NYSE: BEP). It is already working to support Microsoft‘s and Alphabet‘s AI data centers. The best part, all three have yields well over 4.5%.
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Power demand is increasing at a rapid clip
Between 2005 and 2025, electricity demand increased by 10%. Between 2025 and 2045, however, demand is projected to increase by 60%. That’s a step change in demand driven by a shift toward electricity as a power source and, at the same time, new technology, including electric cars and artificial intelligence (AI).
Meeting that demand won’t be easy, and it is already causing problems for the AI industry. One of the quickest ways to develop new power sources is through natural gas turbines. There are drawbacks, as Mississippi residents are aware, since the off-grid power plants for one of Musk’s Tennessee AI data centers are located there. Still, when it needed power fast, Space Exploration Corporation (NASDAQ: SPCX) did what it needed to do. And the U.S. government appears to be supporting the company’s move to use natural gas turbines despite local pushback.
Natural gas is likely to be a key AI fuel for years to come. This makes Enterprise and Enbridge, two of the largest midstream businesses in North America, attractive high-yield investments. The key is that both make money by charging fees for the use of the energy infrastructure assets. So demand for energy is more important than the price of the energy being moved through their systems.
Enterprise’s yield is 5.7%, the highest on this list. It has increased its distribution annually for 27 consecutive years. Enbridge’s yield is 4.9%, and it has increased its dividend, in Canadian dollars, for 31 years. To be fair, these are indirect plays on the AI sector, since they rely on overall natural gas demand. But both are reliable, though slow-growing, high-yield investments.
Brookfield Renewable offers a cleaner AI play
If you don’t want to own a carbon-focused business, you can still buy a high-yield energy supplier to the AI sector in Brookfield Renewable Partners. This business owns a global portfolio of clean energy assets, including hydroelectric, solar, wind, storage, and nuclear. It operates outside of the regulated utility framework, selling power directly to companies using long-term contracts. As noted above, it has agreements with Microsoft and Google to supply power to their data centers.
Brookfield Renewable Partners’ distribution yield is 4.9%. The distribution has been increased regularly for a decade, noting that the business isn’t as old as the two midstream businesses highlighted above. That said, there is an important difference here. Brookfield Renewable actively manages its portfolio, so it is always buying and selling assets. Enterprise and Enbridge tend to build (or buy) assets and then hang on to them for a long time. Investors who choose Brookfield Renewable should probably pay closer attention to quarterly results to stay on top of portfolio developments.
Power is the ultimate AI pick-and-shovel play
When you step back, AI is really just a fancy computer program. It can’t “live” without electricity. That makes power a key supply story and one that won’t simply go away once an AI data center has been built, because power will always be required to keep the AI running. High-yield natural gas pipeline operators like Enterprise and Enbridge are a good way to play electricity demand growth. Brookfield Renewable is another, for those who prefer to avoid carbon fuels. All three offer big yields backed by reliable cash flows.
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Reuben Gregg Brewer has positions in Brookfield Renewable Partners and Enbridge. The Motley Fool has positions in and recommends Alphabet, Enbridge, and Microsoft. The Motley Fool recommends Brookfield Renewable Partners and Enterprise Products Partners. The Motley Fool has a disclosure policy.
3 Energy Stocks Yielding Over 4.5% to Cash in on the AI Power Boom was originally published by The Motley Fool
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