How High Can This Dividend Stock Rise on Surging Electricity Demand?

Xcel Energy (XEL) is shaking off the typical, boring utility stock image and acting more like a high-growth tech stock. In Q3 2024, it reported earnings of $1.25 per share, slightly up from $1.23 last year. This is catching investors' attention as electricity demand rises, largely driven by artificial intelligence (AI) and data centers. 

The reason for this shift? Data centers are consuming more power than ever, with forecasts showing demand could jump by 160% by 2030. AI alone could make up nearly 19% of that demand by 2028. For context, a single ChatGPT query now uses almost 10 times the power of a Google search. 

Xcel isn’t just watching from the sidelines, either—the utility has already lined up nearly 9,000 megawatts in data center projects by 2030. With AI driving this energy boom, the big question is: how high can Xcel Energy go? Let’s dive into the dividend stock's growth and income potential.

Q3 Earnings and Key Metrics

Xcel Energy (XEL) is a big player in the domestic electricity and natural gas (NGZ24) market, providing services to millions of customers across eight states. The company mainly focuses on generating and delivering energy, and it's putting more effort into clean, renewable sources. By leading the charge in the energy transition, Xcel is well-positioned to meet growing demand while updating its infrastructure.

Financially, Xcel has been doing quite well, and it's got an eye toward more growth. In its Q3 2024 earnings report, the company reported GAAP earnings per share (EPS) of $1.21, a slight increase from $1.19 last year. Ongoing EPS, which excludes one-time costs, climbed to $1.25 from $1.23. So far this year, Xcel has earned $2.63 per share on a GAAP basis, up from $2.47 in 2023, and ongoing EPS improved to $2.69 from $2.52. These numbers show that Xcel is holding strong financially, even with economic ups and downs, thanks to rising energy demand and smart cost management.

With electricity demand on the rise, Xcel Energy is gearing up for long-term growth with an ambitious $45 billion investment plan over the next five years. CEO Bob Frenzel emphasized that the company is taking a leading role in the energy transition. They want to make the power grid cleaner, more efficient, and better able to handle challenges. 

This big investment is not just about keeping pace with demand; it’s about being at the forefront of a major change in the U.S. energy landscape. With new technologies, increased manufacturing, and the electrification of daily life pushing up energy needs, Xcel is preparing to take advantage of these trends while also making sure its infrastructure can handle severe weather and other challenges.

XEL's Stock Performance

Investors responded positively to these results, with Xcel's stock jumping 6% on the earnings announcement. The stock set a new 52-week high of $68.36 to start November, and is now up 22% over the last six months as momentum starts to build. This makes Xcel Energy a standout in the utility sector, especially as global electricity demand keeps climbing.

Management's capex plans not only set the stage for growth, but also support Xcel’s dividend strategy. The company has a forward dividend yield of 3.30% and has raised its dividend for 21 years in a row, which is great news for investors looking for steady income. Their payout ratio is a healthy 57.19%, and management aims for annual dividend growth of 4-6% in the long run. This makes Xcel an appealing option in a market where finding consistent, growing dividends can be tough, especially given its strong outlook for both earnings and infrastructure investment.

Plus, valued at 7.16 times forward cash flow and with a price/earnings-to-growth (PEG) ratio of 2.61, XEL is valued attractively relative to its sector peers - suggesting now is a good time to scoop up the shares.

What’s Next for Xcel’s Stock?

Looking ahead, Xcel Energy's management confirmed their earnings per share (EPS) guidance for 2024, which calls for a range between $3.50 and $3.60, with growth for 2025 projected to reach $3.75 to $3.85. This targeted EPS growth of 6-8% is fueled by their big investments in clean energy and upgrading their infrastructure.

Wall Street seems to be on board with this upbeat outlook. Out of 16 analysts tracking Xcel, the average rating is "Moderate Buy." Specifically, 9 analysts are all in with "Strong Buy" ratings, while 7 recommend a more cautious "Hold." 

The average price target for Xcel is $70.53, which indicates about 6% upside from Wednesday's close. 

Conclusion

Xcel Energy presents a compelling case for investors seeking both growth and income, bolstered by solid earnings, an ambitious $45 billion growth strategy, and rising electricity demand. With a 3% dividend yield that's grown for over two decades, and analysts targeting more upside ahead, Xcel stands out as a utility stock worth adding to nearly any portfolio. As the world races toward electrification, this company looks well-positioned to keep delivering for shareholders.