Often as dividend investors we buy stocks that provide us with income now. We take the current yield and happily collect the monthly or quarterly payout.
Sometimes, though, it is wise to punt a bit of current yield today in exchange for serious upside tomorrow. Especially when a megatrend is unfolding, as we have in the energy sector today.
A dual boom in electric vehicles (EVs) and artificial intelligence (AI) tools is driving a transformation in power generation. New batteries are needed for storage. The grid is being tapped for more and more “juice.” This is a potential windfall for income investors who are tuned into this important energy transition.
Two payout plays are in prime position to cash in from this power revolution. We’ll discuss them in a moment. First, let’s appreciate the bullish setup.
The energy sector is undergoing a “transition of the century.” Trillions of dollars are flowing into new electrification and energy storage technologies. More and more EVs are hitting the road, with the global market for EVs projected to triple by 2033, regardless of the political environment.
Car makers are going “all in” on the transition from unleaded to electric:
- General Motors (GM) sold 50% more EVs year-over-year.
- Ford’s (F) EV sales climbed 38% from a year ago.
- Tesla’s (TSLA) deliveries are projected to rise by 15% in 2025.
The lithium-ion battery is the lynchpin of this trend. Lithium demand is projected to triple by 2035. Which means any supply shortage will spike prices.
Three-quarters (75%) of all global lithium production goes into batteries. This is up from 40% back in 2017 at the start of Trump 1.0. And what’s different this time around for Trump 2.0? Elon Musk, of course, who is politically well-positioned to rev up electric vehicle sales.
Global X Lithium ETF (LIT): This fund is the simplest way to play the inevitable rise in lithium prices. It yields a shade under 1% today but the real action here is the potential upside. During the last lithium bull run from early 2020 to late 2021, LIT quadrupled.
But it is not a fund to buy and hold forever. After that move higher, too much supply came online, including a near-50% increase in 2024, and lithium prices tanked. LIT sold off along with them.
Industry forecasters remain bearish, which we contrarians like. There is also tariff risk here, which has scared off Wall Street suits. China has a substantial role in the lithium supply chain, and it recently imposed export controls on tungsten and indium, two minerals essential to battery technology.
Despite these bearish fundamentals, a funny thing happened in September—LIT quietly bottomed after a three-year downtrend. The news continues to appear bad for LIT, yet the fund has stopped slumping. This is often a promising signal that the worst is priced in.
Institutional investors have been avoiding LIT during its downtrend. Tariff worries have compounded the contagion. If the big money starts flowing back into LIT, it will move higher quickly.
Lithium investing is volatile—better as a short-term trade than a long-term buy and hold. For investors who prefer a steadier ride and are slow to sell, blue-chip utility Duke Energy (DUK) is a “must have” for EVs that demand a robust charging infrastructure. The stock yields 3.6% and should benefit from electric cars as well as the ongoing AI boom.
More EVs hitting the road means more demands on the power grid. That’s one reason why Duke is expanding the charging infrastructure and investing in grid upgrades in its home Florida and North Carolina markets.
Then there’s AI. The data centers that power ChatGPT and friends are bigtime electricity customers. Electricity demand from data centers already accounts for 5% of total US consumption, and growing AI will boost that massively.
Duke’s operations fuel data center expansion in Florida and North Carolina big tech hubs. Data centers are dream “whale” customers for utilities because not only do they consume a ton of juice, but they also sign long-term power agreements, providing predictable and stable revenue.
Sixteen months ago, Duke sold its commercial renewable energy business to Brookfield Renewable Partners (BEP). This move completed a strategic transition where Duke jettisoned its last remaining unregulated business. All of Duke’s remaining operations are under regulatory oversight. These wonderfully boring businesses produce steady, growing cash year after year after year.
A “tariff-powered cap” on long-term interest rates is also a tailwind for Duke shares. Utility stocks tend to trade like bonds, which means they rise as interest rates—especially long rates—fall. As we discussed last week, the parade of tariffs will likely cement a ceiling in long-dated rates.
The Centre for Economic Policy Research found that contrary to the headlines, tariffs do not boost inflation. Rising prices require a hot economy—and a trade war does the opposite. Slower growth brings lower rates, and as investors look for safety in stocks, they buy utilities like DUK.
Which is why we are looking to load up on DUK and its battery-powered teammate LIT now—before these megatrends become obvious to vanilla observers.
These catalyst-powered dividends are set to soar as these trends play out in plain sight. And they are not alone. I also like five more big payouts with serious price upside ahead—click here to learn about my five dividend stocks poised to soar.