Goldman Sachs has identified key dividend-paying energy stocks, Kodiak Gas Services and The Williams Cos, as top picks fueling the data center industry. These companies are innovating with “behind-the-meter” power solutions to meet the enormous energy demands of data centers, offering significant growth potential and strong dividend yields above the S&P 500 average. Goldman’s ‘Ten Buys’ list also features other notable dividend payers like Expro Group Holdings, Marathon Petroleum, and ConocoPhillips, highlighting opportunities in the broader energy sector.
Goldman Sachs has recently highlighted a select group of "buy-rated" energy and power stocks that are crucial for powering the rapidly expanding data center sector. These companies not only offer compelling growth prospects but also provide attractive dividend yields, outperforming the S&P 500's current dividend yield of 1.04%.
Earlier this month, the prestigious firm released its latest "Ten Buys" list, identifying energy and power stocks with strong risk/reward profiles. The list is underpinned by five key investment themes: potential upside from mergers and acquisitions, positive sentiment in the refining sector, anticipated mean reversion in Big Oil, appealing risk/reward in international oil services, and the significant growth narrative surrounding data centers and power generation.
Kodiak Gas Services: A Midstream Powerhouse
Among the data center power plays, Kodiak Gas Services stood out. This Texas-based energy infrastructure company specializes in natural gas compression services, and Goldman Sachs considers it one of the most intriguing opportunities within its midstream smid-cap coverage. The firm projects an impressive 15% earnings before interest, taxes, depreciation, and amortization (EBITDA) growth for Kodiak through 2030. This growth is expected to be fueled by its core compression business and its strategic expansion into "behind-the-meter" power generation.
"Behind-the-meter" power refers to energy generated or stored on the customer's side of the power meter, a vital solution for data centers to meet their substantial power demands without overstraining local grids. Kodiak recently cemented a multiyear agreement with Baker Hughes, under which Baker will supply gas turbines and generators to bolster Kodiak's behind-the-meter initiatives.
Goldman's bullish stance on Kodiak is widely echoed across Wall Street, with all 15 analysts covering the stock rating it a "buy" or "strong buy," according to LSEG. While the consensus price target suggests a 27% upside, Goldman's more aggressive $89 price target implies a potential surge of over 36% from Friday's closing price. Shares of Kodiak have already climbed nearly 75% this year, and the company offers an attractive dividend yield of 3%.
The Williams Cos: Diversifying into Data Center Energy
The Williams Cos, an Oklahoma-headquartered natural gas infrastructure company, is another compelling "buy" in Goldman's large-cap midstream coverage. The firm cites the ongoing natural gas demand theme as a primary driver. While the company's traditional pipeline announcements have seen modest activity, Goldman finds Williams' proactive diversification into behind-the-meter deals particularly attractive.
Goldman analysts believe the market may be underestimating Williams' future success in behind-the-meter projects, its various funding options for new ventures, and the potential for larger pipeline announcements to materialize. They note that the overall risk to the company's EBITDA compound annual growth rate (CAGR) is likely skewed to the upside.
During an earnings call in May, Williams leadership unveiled three new projects: "Neo," a behind-the-meter project with a prominent "hyperscaler"; "Atlas," a gas infrastructure agreement designed to serve a large, investment-grade customer data center in the Northeast; and "Silver Spur," an expansion of Williams' existing Northwest Pipeline system. Goldman's price target of $82 indicates nearly 12% upside from Friday's close. Year-to-date, Williams' shares have risen approximately 24%, and the stock provides a current dividend yield of 2.8%. LSEG data shows that 20 out of 25 analysts covering Williams rate it a "buy" or "strong buy," with consensus price targets suggesting over 11% upside.
Other Notable Dividend Payers on Goldman's List
Beyond Kodiak and The Williams Cos, Goldman's "Ten Buys" list for energy names includes other dividend-paying companies such as Expro Group Holdings, which boasts a current yield of around 1.9%; Marathon Petroleum, with a current yield of approximately 1.3%; and ConocoPhillips, offering a yield of 2.8%.
