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Wells Fargo predicts a surge in power demand and recommends investing in long-term dividend-paying stocks

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Income investors looking for opportunities in the stock market may want to take a closer look at the energy sector, according to Wells Fargo analysts. With artificial intelligence, manufacturing, and electrification driving demand for electricity in the U.S., the firm sees a promising future for utilities that are well-positioned to benefit from this trend. In a recent report, Wells Fargo projected a compound annual growth rate of 2.6% in U.S. electricity demand through 2030, with an 80% growth by 2050. The firm anticipates that wind and solar energy will account for approximately 65% of the power supply by 2050, in line with decarbonization goals.

One of the top picks highlighted by Wells Fargo in the utilities sector is Duke Energy, which is considered a leader among vertically integrated electric utilities in high-growth areas. The firm pointed to Duke’s Carolinas Resource Plan, which aims to provide cleaner energy to North and South Carolina through significant infrastructure investments. The plan forecasts a load growth of 35 GWh by 2038 driven by manufacturing and industrial growth, as well as population increases. Duke’s inclusion of advanced nuclear and natural gas resources, alongside renewable energy sources, reflects a balanced approach to meeting energy needs while reducing carbon emissions.

Renewable energy giant NextEra is another company recommended by Wells Fargo for its strong positioning in the growing market for wind, solar, and battery storage products. The firm noted that NextEra has a 10-year site plan that includes substantial investments in solar capacity installations and battery storage, while also phasing out coal-powered generation. By 2033, NextEra projects that the combined solar and nuclear fuel mix delivered to customers will account for approximately 56% of its energy supply, reflecting a significant shift towards cleaner energy sources.

Constellation Energy, despite offering a modest dividend yield of 0.7%, has seen a surge in its stock price in 2024. The company’s recent actions, including plans to increase its dividend and initiate share repurchases, have captured the attention of investors. Constellation’s partnership with Microsoft to power one of the tech giant’s data centers using carbon-free energy further aligns with the growing demand for sustainable energy solutions. Wells Fargo analysts noted that while Constellation’s stock price may suggest optimism, there is potential for further outperformance due to the company’s strategic initiatives and focus on clean energy.

In addition to Duke Energy, NextEra, and Constellation, Wells Fargo also highlighted NRG Energy and Entergy as overweight-rated names in its list of recommended stocks. These companies are expected to benefit from the increasing demand for electricity in the U.S. driven by factors such as artificial intelligence, manufacturing growth, and electrification. With a focus on renewable energy sources and strategic investments in clean energy technologies, these utilities are well-positioned to capitalize on the evolving energy landscape and deliver value to investors over the long term.

Overall, Wells Fargo’s outlook on the energy sector is optimistic, with a focus on utilities that are proactively addressing the shifting energy landscape towards cleaner and more sustainable options. Investors looking for income opportunities in the stock market may find value in companies like Duke Energy, NextEra, and Constellation, which are well-positioned to benefit from the growing demand for electricity in the U.S. driven by technological advancements and the transition to renewable energy sources. By identifying and investing in companies at the forefront of this trend, income investors can potentially capitalize on the long-term growth potential of the energy sector.

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