Top 3 Stocks to Invest in from the Growing Electric Power Sector

Overview of the Electric Power Industry

The electric power industry plays a crucial role in providing electricity to millions of customers across the United States. Companies within this sector are actively working to transition toward cleaner energy sources and reduce carbon emissions, supported by government policies that encourage sustainable power generation. In addition to focusing on renewable energy, utilities are making significant investments in upgrading the grid and improving transmission and distribution infrastructure. These efforts are essential for enhancing system resilience, reducing outages, and ensuring quicker restoration of power after severe weather events, especially during hurricane seasons.

Key Players in the Utility Sector

Several established utility companies offer attractive investment opportunities in the electric power industry. One such company is CenterPoint Energy Inc (CNP), which focuses on upgrading its infrastructure to maintain the reliability of its electric, gas, and steam delivery systems. Other notable utilities worth considering include Fortis Inc (FTS) and NiSource Inc (NI). These companies have demonstrated strong financial performance and are well-positioned to benefit from ongoing industry trends.

Understanding the Electric Power Industry

The electric power industry encompasses the generation, transmission, distribution, storage, and retail of electricity to consumers. Demand for utility services typically remains stable across economic cycles, though extreme weather conditions can lead to increased consumption. The industry is undergoing a transformation, with many companies committing to zero-emission goals. The rise in global internet usage and the growth of artificial intelligence (AI) are also expected to significantly increase electricity demand, as AI processes require more power than traditional online activities.

Additionally, a decline in interest rates has been favorable for the capital-intensive utility sector. Lower borrowing costs help alleviate financial strain and support infrastructure investments. More rate cuts are anticipated in 2025, which could further benefit utility operators.

Three Major Trends Shaping the Future of the Electric Power Industry

Interest Rate Decline is a Tailwind

Utility companies often rely on capital markets for financing maintenance, upgrades, and expansion. The Federal Reserve’s previous rate hikes had increased borrowing costs, but recent rate cuts have brought the benchmark down to 4.25-4.50%. This shift is beneficial for domestic utilities, as lower interest rates reduce financial pressure and support long-term infrastructure projects.

Increasing Production and Prices for Electricity

According to the U.S. Energy Information Administration (EIA), the electric power sector is expected to generate 2.2% more electricity in 2025 compared to 2024, with an additional 2.3% increase projected for 2026. The rise in electricity demand, driven by commercial and industrial sectors, is also fueled by the growth of data centers, particularly those powered by AI. As a result, electricity prices are expected to rise, boosting revenues for utility companies.

Transition Toward Cleaner Sources to Generate Power

The U.S. electric power sector is gradually shifting toward cleaner energy sources. Renewable energy is expected to account for 25% of electricity generation in 2025 and 26% in 2026. The Inflation Reduction Act supports this transition by providing predictable federal incentives for renewable energy, creating long-term earnings visibility for utility companies.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Industry Rank reflects the near-term prospects of the electric power industry. With a rank of #86, the industry is positioned in the top 35% of all Zacks industries. Research shows that the top 50% of ranked industries outperform the bottom 50% by a factor of more than two to one. This positive outlook is based on the strong earnings outlook for the constituent companies.

Recent Performance and Valuation

Over the past 12 months, the electric power industry has gained 16.9%, outperforming its own sector, which rose by 14.2%. However, it has lagged behind the S&P 500, which gained 22.7% in the same period. On the basis of EV/EBITDA (Enterprise Value/Earnings before Interest Tax Depreciation and Amortization) TTM, the industry is trading at 14.37X, compared to the S&P 500’s 17.02X and the Utility sector’s 15.75X.

Top Electric Power Industry Stocks to Consider

Utilities is a mature sector, and the selected stocks from the Zacks Utility Electric Power industry have market capitalizations exceeding $20 billion. Each of these stocks currently carries a Zacks Rank #2 (Buy).

CenterPoint Energy (CNP)

Based in Houston, Texas, CenterPoint Energy provides electric transmission and distribution, natural gas distribution, and competitive natural gas sales and services. The company plans to invest $53 billion over the next 10 years to strengthen its operations. Its long-term earnings growth is pegged at 7.8%, and its current dividend yield is 2.3%.

Fortis Inc (FTS)

Headquartered in Saint John, Canada, Fortis Inc operates as an electric and gas utility company in Canada, the U.S., and the Caribbean. For the 2025-2029 period, the company expects to make investments of $26 billion. Its long-term earnings growth is pegged at 5.13%, with a current dividend yield of 3.53%.

NiSource Inc (NI)

Based in Merrillville, Indiana, NiSource Inc provides natural gas, electricity, and other products and services in the U.S. It plans to invest $19.4 billion between 2025 and 2029. The company’s long-term earnings growth is pegged at 7.88%, with a current dividend yield of 2.58%.