2 Energy Dividend Stocks to Buy and Hold for AI Upside

The energy sector was the center of attention today amid surging tensions in the Middle East, with potential supply disruptions sending prices higher after a weekend exchange of fire along the Lebanon border. But while crude futures (CLV24) continue to fluctuate in response to traditional geopolitical catalysts, there's a broader shift reshaping the energy sector as artificial intelligence (AI) demand forecasts begin to rise. 

Specifically, the rising electricity needs of AI data centers are expected to add around 323 terawatt hours of electricity demand in the U.S. by 2030. As power companies struggle to meet this surge in demand, EQT Corporation (EQT) and Chesapeake Energy Corporation (CHK) are two natural gas (NGU24) stocks that could be poised to capitalize, according to analysts at Mizuho. Along with the prospect of AI-driven upside, both stocks also offer healthy dividends to shareholders. For investors seeking income and growth, here's a closer look at these two energy dividend stocks.

#1. EQT Corporation

EQT Corporation (EQT) is the largest natural gas producer in the United States. The company focuses on responsible and sustainable operations and revolves around the exploration, development, and production of natural gas. It is also committed to environmental stewardship and community engagement.

Amid lower commodity prices, EQT stock has also declined, dropping 21% over the past 52 weeks and 14.2% on a YTD basis. 

Valued at $14.85 billion, EQT is currently priced at a forward P/E ratio of 22.48, right in line with its five-year historical average valuations. The natural gas company pays a quarterly dividend of $0.157 per share, which works out to an annual dividend yield of 1.87% at current levels. After a pandemic-era dividend pause, EQT raised its dividend in each of the last two years.

In the second quarter of 2024, EQT's sales volume exceeded expectations, thanks to operational efficiency, but capital expenditures were lower than anticipated. The company is sticking to its 2024 outlook, aiming for 2,100-2,200 Bcfe in sales volume and maintaining capital expenditures between $1,950-$2,050 million. To manage debt, EQT is marketing non-operated assets and increasing hedging to cover about 60% of its production for the latter half of 2024.

EQT is also making strategic moves, like planning to produce clean hydrogen and low-carbon aviation fuel from its Appalachian natural gas following a deal with the Department of Energy. The recent acquisition of Equitrans Midstream Corporation aims to create a vertically integrated natural gas business with potential annual synergies of over $425 million.

Analysts are optimistic about EQT, which has a “moderate buy” consensus. Out of 20 analysts, 10 suggest a “strong buy,” one has a “moderate buy,” and nine recommend a “hold.” The mean target price of $43.05 indicates expected upside of about 30% from the current price.

#2. Chesapeake Energy Corporation

Chesapeake Energy Corporation (CHK) is a leading exploration and production company based in Oklahoma City. It focuses on acquiring, exploring, and developing properties to produce oil, natural gas, and natural gas liquids (NGLs) from underground reservoirs in the U.S.

CHK has also underperformed on a YTD basis, but the stock is down just 3.9% so far in 2024. Over the past 52 weeks, Chesapeake Energy stock has declined 13.2%.

Chesapeake Energy has a market capitalization of $9.62 billion. With an EV/EBITDA ratio of 6.43, CHK seems reasonably valued at current levels, compared to its energy sector peers. 

The company has consistently paid dividends for 14 straight quarters, with the most recent quarterly dividend of $0.575 per common share to be paid in September 2024, resulting in an annual dividend yield of 3.32%.

Chesapeake Energy reported softer-than-expected results for the second quarter of 2024, with a net loss of $227 million, or $1.73 per fully diluted share, and adjusted net income of $1 million, or $0.01 per share. The company produced approximately 2.75 bcf/d net (100% natural gas) and had 75 combined DUCs and deferred TILs at the end of the quarter. 

For the full year, Chesapeake Energy expects to drill 95-115 wells and place 30-40 wells on production, consistent with previous guidance. The company has lowered its 2024 capital and production expense guidance by approximately 4% and 8%, respectively, due to improved operational efficiency and year-over-year deflation.

In early 2024, Chesapeake Energy announced an agreement to merge with Southwestern Energy Company in an all-stock transaction. The strategic combination aims to create a premier energy company with a leading natural gas portfolio, premium inventory, resilient free cash flow, and an investment-grade balance sheet. 

The combined company, which will assume a new name at closing, is expected to deliver affordable, lower-carbon energy to meet growing domestic and international demand while providing sustainable cash returns to shareholders.

Analysts have a generally positive outlook on CHK, with a “moderate buy” consensus based on 18 analysts' recommendations. Eight suggest a “strong buy,” two recommend a “moderate buy,” and eight advise a “hold.” The mean target price for CHK is $101.50, implying a potential upside of 37.4%.

Conclusion

In conclusion, as the demand for energy surges alongside the growth of artificial intelligence, EQT Corporation and Chesapeake Energy Corporation stand out as compelling investment opportunities. Both companies are strategically positioned to benefit from the AI-driven energy boom, offering investors a chance to tap into the natural gas sector's potential while enjoying steady dividend income. With their robust business models, strategic initiatives, and positive analyst outlooks, EQT and CHK present a promising avenue for those looking to capitalize on the evolving energy landscape.