Over the past 24 months, the once-stodgy utilities sector has soared as electricity demand from data centers has increased nationwide. Because they operate continuously, data centers consume electricity. These operations involve operating large numbers of servers, cooling systems, networking equipment, and other infrastructure components. The electricity consumption of data centers varies widely with size, capacity, efficiency, and geographic location, yet demand is constant. While that was an important data point over the past few years, many of the top stocks in the sector have delivered outsized gains and may be trading near their highs.
The analysts at Jefferies note that the utility sector has started 2026 on the right foot and that the implications of the election cycle are data points too important to ignore. While they remain positive on the sector, they have become very selective in the stocks they recommend. They said in a recent research report:
While utilities have had a decent start to ‘26, investor concerns have risen due to unfavorable regulatory and political developments. With 36 Gubernatorial elections, the expectation is that the political rhetoric will only increase throughout the year. Further, there have been data center setbacks, further sapping confidence. Despite affordability remaining a key political talking point, we continue to see positive EPS revisions broadly and highlight utilities we view as lower risk due to less political exposure and better earnings upside.
Five leading companies are the top picks at Jefferies. All five offer a safer regulatory and political environment than some competitors and, most importantly, pay substantial dividends. All are Buy-rated at Jefferies, and all make sense for conservative growth and income investors looking to preserve capital while generating reliable passive income.
Why are we covering utility stocks?
The S&P 500 utilities sector has gained nearly 21% from its low in April of 2025. Equities will be affected if major stock market indices experience a significant decline, and we have recently seen signs that such a decline could be imminent. However, history shows that utility stocks are likely to hold their ground much better than high-flying technology stocks, especially those chasing the Artificial Intelligence mania.
Ameren
While off the radar, this is a quality name in the Midwest that pays a 2.69% dividend. Ameren Corp. (NYSE: AEE) is a public utility holding company.
The company operates through four segments:
- Ameren Missouri
- Ameren Illinois Electric Distribution
- Ameren Illinois Natural Gas
- Ameren Transmission
The Ameren Missouri segment comprises all operations of Ameren Missouri. Ameren Missouri operates a rate-regulated electric generation, transmission, and distribution business, as well as a rate-regulated natural gas distribution business, in Missouri.
The Ameren Illinois Electric Distribution segment comprises Ameren Illinois’s electric distribution business.
The Ameren Illinois Natural Gas segment comprises Ameren Illinois’s natural gas business.
The Ameren Transmission segment primarily consists of the aggregated electric transmission businesses of Ameren Illinois and Ameren Transmission Company of Illinois (ATXI). The Company owns an integrated transmission system comprising the transmission assets of Ameren Missouri, Ameren Illinois, and ATXI.
The Jefferies target price for the stock is $124.
CenterPoint Energy
This company serves customers nationwide, operates in both the North and South, and pays a 2.16% dividend. CenterPoint Energy Inc. (NYSE: CNP) is an energy delivery company.
The company owns and operates electric transmission, distribution, and generation facilities, as well as natural gas distribution systems. Its segments include Electric and Natural Gas.
The Electric segment includes electric transmission and distribution services that are subject to rate regulation in Houston Electric’s and Indiana Electric’s service territories.
The Natural Gas segment includes:
- Intrastate natural gas sales to, and natural gas transportation and distribution for residential, commercial, industrial, and institutional customers in Indiana, Minnesota, Ohio, and Texas
- Permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies
- Home appliance maintenance and repair services to customers in Minnesota
- Home repair protection plans to natural gas customers in Indiana, Ohio, and Texas through a third party
The Jefferies price target is $44.
Entergy
This energy company is engaged primarily in electric power production and retail distribution operations in the Deep South of the United States. Entergy Corp. (NYSE: ETR) is a solid choice for conservative investors, offering a 2.48% dividend. It operates in two segments.
- Utility
- Entergy Wholesale Commodities.
The Utility segment generates, transmits, distributes, and sells electric power in New Orleans and portions of:
- Arkansas
- Louisiana
- Mississippi
- Texas
The company also distributes natural gas.
The Entergy Wholesale Commodities segment is involved in:
- The ownership, operation, and decommissioning of nuclear power plants located in the northern United States
- Sale of electric power to wholesale customers
- Provision of services to other nuclear power plant owners
- Ownership of interests in non-nuclear power plants that sell electric power to wholesale customers
The company generates electricity through gas, nuclear, coal, hydro, and solar sources. It sells energy to retail power providers, utilities, electric power co-operatives, power trading organizations, and other power generation companies.
Its power plants have approximately 24,000 megawatts (MW) of generating capacity, including 5,000 MW of nuclear power.
Jefferies has a $114 target price.
NiSource
This is another company that is less well known but offers solid upside potential and a 2.55% yield. NiSource Inc. (NYSE: NI) is an energy holding company operating in two segments.
The Columbia Operations segment, through its wholly owned subsidiary, NiSource Gas Distribution Group, Inc., provides natural gas to approximately 2.4 million residential, commercial, and industrial customers in Ohio, Pennsylvania, Virginia, Kentucky, and Maryland. It operates approximately 37,200 miles of distribution main pipeline, plus the associated individual customer service lines, and 330 miles of transmission main pipeline.
The NIPSCO Operations segment includes NIPSCO Holdings I and its subsidiaries, including NIPSCO, which has fully regulated gas and electric operations in northern Indiana.
NiSource has six renewable generation facilities in service:
- Rosewater
- Indiana Crossroads Wind
- Indiana Crossroads Solar
- Dunn’s Bridge I Solar
- Cavalry Solar and Storage
- Dunn’s Bridge II Solar and Storage
The Jefferies target price is $49.
One Gas
This company has an unusual name, but it dominates its region and offers investors a 3.27% dividend and a very safe profile. One Gas Inc. (NYSE: OGS) is a regulated natural gas distribution utility in the United States.
The company operates in a single segment: regulated public utilities that deliver natural gas to residential, commercial, and transportation customers. The company provides natural gas distribution services to approximately 2.3 million customers.
One Gas has three divisions:
- Oklahoma Natural Gas
- Kansas Gas Service
- Texas Gas Service
It primarily serves residential, commercial, and transportation customers in all three states.
The company’s natural gas distribution markets in terms of customers are:
- Oklahoma City and Tulsa, Oklahoma
- Kansas City, Wichita, and Topeka, Kansas
- Austin and El Paso, Texas
It serves approximately 89%, 71%, and 13% of natural gas distribution customers in Oklahoma, Kansas, and Texas, respectively.
The Jefferies target price is $95.
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