The Federal Reserve lowered its benchmark interest rate by 25 basis points on Wednesday, setting the target range at 3.5% to 3.75%. The move, aimed at navigating a softening economic landscape, was accompanied by a cautiously optimistic outlook from Chair Jerome Powell.
While noting that the median GDP projection for next year was slightly higher than September’s forecast, Powell acknowledged persistent inflationary pressures and signs of a “softer labor market.” He attributed a recent pickup in goods inflation to tariff pressures and reiterated that there is no “risk-free path” for monetary policy.
The decision revealed a divided committee. Stephen I. Miran favored a more aggressive 50-basis-point cut, while Austan D. Goolsbee and Jeffrey R. Schmid voted to hold rates steady. Looking ahead, the Fed’s “dot plot” signaled a gradual approach, projecting only one additional rate cut through the end of 2026 following this third reduction of 2025.
This environment of macroeconomic uncertainty and a moderating rate-cut trajectory is driving investors toward sectors known for reliable income. Utility stocks, with their stable dividends and now, surging power demand from artificial intelligence, have become a standout destination.
The Utilities Select Sector SPDR ETF (XLU), for instance, offers a 30-day SEC yield of 2.7%, ranking among the highest for major S&P 500 sector ETFs. Year-to-date through December 5, the XLU has surged 16.8%, performing in line with the broader S&P 500 and ranking as the fourth-best sector behind technology, communications, and industrials.
The AI revolution is proving to be a tailwind for power generators. Here are some utility stocks capturing attention:
Dominion Energy (D): Serving Virginia and the Carolinas, Dominion is at the epicenter of data center growth. “Northern Virginia is the world’s largest data-center market,” said Tim Winter, portfolio manager of the Gabelli Utilities Fund. He noted the company added nearly 1 gigawatt of new data-center load in 2024 alone, which now accounts for roughly 26% of its total load. The stock yields about 4.6%.
Portland General Electric (POR): Oregon’s largest utility serves the “Silicon Forest,” where Intel plans a $36 billion+ investment. The company raised its 2025 sales growth outlook and expects large-customer load to grow 9% annually through 2029. It pays a dividend yielding 4.3%.
American Water Works (AWK): While its 2.55% dividend yield is below the industry average, AWK boasts a strong five-year dividend growth rate of 8.6%. Kyre Lahtinen of Wake Forest University notes that the immense water needs of AI data centers for cooling “could present an opportunity for further growth.”
NorthWestern Energy (NWE): This mid-cap company is merging with Black Hills Corp. (BKH) in a deal set to close in 2026. Analysts believe the combined entity will be better positioned to win manufacturing and data-center projects. Both companies have long streaks of annual dividend increases.
New Jersey Resources (NJR): A natural gas-focused mid-cap, NJR offers a 4.2% yield. Analyst Xavier Epps highlights its “rock-solid regulated business and a dividend track record that keeps marching higher,” alongside active investments in clean-energy initiatives.
As the Fed’s policy path evolves, the utility sector’s blend of income stability and exposure to structural growth trends like AI is attracting investors seeking both defense and offense in their portfolios.
