AI could generate high-octane growth for these high-yielding dividend stocks

Demand for electricity in the US increased to a rather the meager rate of about 0.5% annually in the past couple of decades. However, the country is about to step on the gas. Forecasters predict energy demand to grow by 2% to 4% annual by 2030, on average. AI data centers are a great driver of this acceleration because it consumes enormously amounts of power.

While most data center operators want to power their facilities with renewable energycannot satisfy all this demand on your own. That provides an opportunity for natural gas to fill the void. Because of this, pipeline companies like it Energy transfer (ET 1.06%) and Kinder Morgan (KMI 0.95%) could see an octane boost in the coming years as it works to supply utilities and data center operators with more gas. This could give them more fuel to increase their high-yielding dividends.

Massive incremental demand potential

Energy Transfer is one of the largest midstream energy service providers in the country. It has an extensive network of gas pipelines. Its pipelines currently transport gas to 185 power plants, either directly or through indirect connections.

The company is already starting to capitalize on the increase in gas demand by power plants. Signed agreements to supply an additional 500,000 MMBtu/day (million BTUs per day) of gas in the last two years. This is only a fraction of the incremental demand they are trying to meet. The company is eyeing expansions to at present connected gas plants to supply them with more than 1 billion cubic feet per day (Bcf/d) of gas. In addition, it is in discussions with power plants with new connections that could consume more than 5 Bcf/day. Additionally, it is in discussions with data center customers that include more than 3 Bcf/d of potential new demand.

This incremental demand will allow the company to use available capacity on its existing footprint and build new pipelines. It should also have more opportunities to expand its natural gas gathering and processing capacity to support higher volumes of gas production.

The increase in gas volumes would allow the pipeline company to generate more fee-based revenue to support its increasing cash distributions to investors. The main limited partnership at present it expects to grow its distribution, which yields nearly 8%, by 3% to 5% a year. Accelerating gas demand could allow the company to increase its payments to or potential above the upper limit of its range in the coming years. Even at the low end, power transfer could produce double-digit total annual returns.

Cash in already on boom

Kinder Morgan operates the nation’s largest natural gas transmission network. It has about 66,000 miles of pipelines that carry more than 40 percent of the country’s gas production. It also has an extensive gas storage operation, with 15% of the country’s total capacity. Kinder Morgan receives about 64% of its cash flow from gas-related services, which is more than any other midstream company in the US.

The company’s base case is that the US will see 3 to 6 Bcf/d of incremental demand from energy companies by 2030 to support data centers. Meanwhile, it sees upside potential of more than 10 Bcf/d. This will fuel the need for much more natural gas pipeline capacity in the coming years.

Kinder Morgan is already beginning to capture some of these expansion opportunities. The company and her utility partner, The Southern Company, recently agreed to expand the southern line of the Southern Natural Gas Pipeline by about 1.2 Bcf/d. The $3 billion project, $1.7 billion of which will be funded by Kinder Morgan, will help meet growing demand for local power generation and distribution in the Southeast when it comes online in late 2028.

That project is part of the $5.2 billion expansion backlog, the bulk of it from which supports natural gas. These projects will help increase Kinder Morgan’s cash flow, which should allow it to further increase its dividend. The company has raised its payout, which yields more than 5%, for seven consecutive years, including by 2% earlier this year. It could increase the dividend at an accelerated pace in the future if demand growth materializes as expected.

Collect a growing income fueled by gas current

As operators of two of the nation’s largest gas pipeline networks, Energy Transfer and Kinder Morgan should benefit from the expected acceleration in gas demand fueled by AI data centers. It should give them more opportunities to expand their operations, which would give more fuel to grow its high-yielding dividends. That makes them lower-risk ways to take advantage of the AI ​​boom.