I'd Buy More of These 3 Dividend Stocks Before the Market Figures Out What It's Missing

Utility stocks have mostly been viewed as safe, boring, reliable cash generators that offer portfolio protection during times of uncertainty. The trade-off for that reliability has been that, typically having regulated rate structures, utility companies need approval to increase prices, constraining revenue growth.

A shift is underway, however, as a new revenue catalyst is emerging, driven by the increasing energy and resource demands of data centers. That new revenue source for many utility providers could not only unlock stock price appreciation as more investors see sales increasing, but also allow companies to keep their dividend payouts intact and even grow them for years to come.

The companies to consider investing in for this shift include American Electric Power (NASDAQ: AEP), American Water Works (NYSE: AWK), and Black Hills (NYSE: BKH).

American Electric Power

American Electric Power does what its name says, generating electricity for over 5 million customers across 11 states. It's that type of reach that helps create consistent cash flow, and the company is spending $72 billion on infrastructure over five years to keep supporting its operations.

The $72 billion is indeed a significant amount. Still, with Fortune Business Insights forecasting the global data center market will climb from around $300 billion in 2026 to roughly $699 billion by 2034, American Electric is positioning itself now to be a major player for the future. The company is partnering with the U.S. Department of Energy and SB Energy, a SoftBank Group subsidiary, to support a data center in Ohio.

For income generation, American Electric has paid a dividend each year since 1910, and it has offered consistent, consecutive dividend increases. Its payout is respectable, currently yielding around 2.8%.

American Water Works

American Water Works was founded in 1886 and provides water and wastewater services across multiple states. That's an essential business in and of itself, but the company also has a new revenue catalyst thanks to data center demand. In addition to being power-hungry, data centers also need cooling and water treatment solutions.

American Water Works can meet that demand with its proposed merger with Essential Utilities. Essential is an investor in a data center facility in Pennsylvania, and it will provide water services to both the power plant and data center involved in the project.

As a bonus, Essential Utilities also provides natural gas services. Through a subsidiary, Essential will engage in gas consulting and other services to the project mentioned above.

American Waterworks has a dividend payout that is yielding 2.5%, and when it combines with Essential Utilities, the new entity is expected to follow American Water's growth targets for dividend payouts.

Black Hills

Black Hills operates natural gas and electricity segments, with over 1.3 million customers across eight states. It tapped into the data center boom early, partnering with Meta Platforms in 2014 to power a data center in Wyoming. On April 14, Microsoft also announced a utility partnership with Black Hills.

It also may soon have even more utility resources, thanks to a planned merger with NorthWestern Energy Group, which provides natural gas and electricity services to over 850,000 customers.

If the merger is approved, the combined entity will be named Bright Horizon Energy, and it is expected to continue to pay dividends. That payout currently yields 3.7%, the largest yield of the three companies highlighted above.

Jack Delaney has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Microsoft. The Motley Fool has a disclosure policy.