Shareholders of Entergy (ETR) have enjoyed an impressive 47% return this year. That comes in addition to a solid dividend, which just saw another hike last quarter.
Headquartered in New Orleans, Entergy provides electric power utilities to 3 million customers across Louisiana, Arkansas, Mississippi and Texas.
The impressive returns this year are driven by a surge in data-center demand to supply the power needs of artificial intelligence. This growth has sparked renewed excitement in the once sleepy utility sector. According to McKinsey & Co., data center energy consumption in the U.S. is projected to grow from about 4% of total energy demand today to 11%-12% by 2030.
Entergy has already seen solid earnings growth, which is only set to accelerate in the longer term. The company expects 8%-9% earnings growth post 2025.
Dividend Stock And Data Centers
These growth expectations are not just speculation. Earlier this month, Facebook’s parent company, Meta Platforms (META), announced plans to invest $10 billion in what will be its largest data center, in Louisiana. To power the plant, Entergy plans to bring three natural gas power plants online.
While Entergy’s annualized 3.2% dividend yield is much higher than the S&P 500 average of 1.2%, it is lower than most companies profiled in IBD’s Income Investor column. Still, the story remains compelling due to steady dividend growth. In November, the company raised its quarterly dividend by 6%, to $1.20 per share.
If Entergy meets its growth projections, investors can likely expect continued, sizable dividend increases. Given the monopolistic characteristics of the utility market, this seems like a strong bet.
Additionally, the company is in a solid fiscal position, with its debt rated at investment-grade (BBB+) by S&P Global.
However, there is some uncertainty about where future data center growth will occur. And if the industry doesn’t meet long-term expectations, Entergy’s current valuation could be called into question.
Shares of Entergy are currently finding support at their 10-week moving average, with an entry point around 73.50. This is the first buy area since the dividend stock cleared a base in August, according to MarketSurge pattern recognition.
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