My 3 Favorite AI Stocks for Income Investors
Editor’s Note: In today’s article, Jim identifies three Personal Finance Income Portfolio holdings that give income investors indirect exposure to the AI data center buildout — a data center REIT, a power utility supplying that infrastructure, and a BDC lending to the companies building it. His full Personal Finance briefing extends that logic across the entire rotation: the AI buildout is spending trillions, and the payoff lands with the operators and infrastructure layer, not the builders themselves. See where the AI capex pays off →
The tech sector is on a roll. Since March 30, the NASDAQ Composite Index, which consists almost entirely of tech stocks, has gained 30 percent.
That is mostly due to huge gains by a handful of tech companies that are considered the biggest beneficiaries of the artificial intelligence (AI) data center buildout. Since the start of this year, Dell Technologies (NYSE: DELL) is up more than 250 percent, while Western Digital (NSDQ: WDC) has gained 160 percent.
Those are eye-popping numbers that are every growth investor’s dream. I’m proud to say that I hold both of those stocks in the Personal Finance Growth Portfolio, along with a few others that have performed almost as well.
Not all my subscribers have a primary investment objective of growth. Many of them are retired and rely on dividends to supplement their other sources of income.
Most tech companies pay little or no dividends. They do that so they can reinvest their excess cash flow into growth initiatives or buy back their own stock to improve their per-share operating metrics.
That does not mean that there is no place for tech in an income investor’s portfolio. In fact, three holdings in the Personal Finance Income Portfolio pay a healthy dividend and have considerable exposure to the tech sector.
Digital Realty Trust
The easiest way for an income investor to participate in the AI data center trade is to buy shares of a real estate investment trust (REIT) that owns data center properties. One that I like is Digital Realty Trust (NYSE: DLR), which holds more than 300 data centers spread across six continents in its portfolio.
Due to the high quality of its portfolio, DLR is popular with institutional investors. Collectively, they hold approximately 96 percent of its common shares.
For that reason, DLR trades at higher multiples to earnings and cash flow than most other REITs. That is why its forward annual dividend yield is 2.5 percent, which is low for a REIT.
Digital Realty has not raised its quarterly cash dividend payment of $1.22 in four years. The company is using most of its free cash flow to acquire more properties instead of raising its dividend payment.
I think that will change next year. Its share price can’t go much higher without an increase in the dividend to keep its yield competitive with other income investments.
Also, the possibility of a Fed rate hike later this year is one more reason why the company may need to up its payout. Already, the 4.7 percent yield on the 10-year Treasury Note is nearly twice what Digital Realty’s shareholders are getting.
American Electric Power
You may be wondering how an electric utility can be considered a play on AI. If you are, then you probably don’t live near a data center. People who do know all too well how having a data center in the neighborhood can affect their utility rates.
Data centers consume enormous amounts of electricity. So much so that many communities are banning them altogether or insisting that they be powered independently of the local utility grid.
Either way, that’s good news for electricity public utility holding company American Electric Power (NSDQ: AEP). In communities that allow it, the company can provide power from its local grid. In places where that is not allowed, it will construct dedicated power plants for data centers.
When American Electric Power released its fiscal 2026 Q2 results a few weeks ago, it raised its guidance for earnings per share in part due to escalating demand from data centers. The company also “reaffirmed its annual operating earnings growth rate of 7% to 9% through 2030, with an expected operating earnings compound annual growth rate (CAGR) of greater than 9%.”
Nevertheless, Wall Street was nonplussed by those results, leaving its share price around $125. At that price, the company’s quarterly cash dividend of 95 cents works out to a forward annual dividend yield of roughly 3.1 percent.
Over the past twenty years, American Electric Power has raised its dividend by an average of 5 percent. That won’t be the case this year, but given the company’s optimistic guidance, it is not unreasonable to assume that it will resume that tradition next year.
Hercules Capital
Similar to Digital Realty Trust, business development company (BDC) Hercules Capital (NYSE: HTGC) is a registered investment company that must pay out at least 90 percent of its net investment income to qualify for income tax exemption on its corporate earnings. It earns income by lending to small, privately owned companies in the tech sector. When one of those businesses is acquired or goes public, Hercules Capital gets an equity kicker in addition to the nominal interest on the loan.
Since adding it to the Personal Finance Income Portfolio ten years ago, HTGC has delivered a total return (share price appreciation plus dividends paid) of approximately 220 percent. However, none of that gain has happened since February 2025, when HTGC topped out around $22. Since then, it has gradually receded to its pre-COVID-19 share price below $17.
At that price, Hercules’ most recent quarterly cash distribution of 40 cents equates to a forward annual dividend yield of about 9.5 percent. In addition, its most recent supplemental dividend of 7 cents bumps that yield up to a little over 11 percent.
Normally, a dividend yield in excess of 10 percent is a red flag that Wall Street is afraid that a dividend cut may be in the offing. That is always a risk with any high-yielding stock, but in this case, Hercules appears to be in sound financial condition.
When the company released its fiscal 2026 Q2 and 1H (first half) results on July 30, it noted that it made “Record 1H 2026 Total New Debt and Equity Commitments of $2.74 Billion, an Increase of 35.6% Year-over-Year.”It also recorded all-time highs for total fundings of $1.35 billion, total investment income of $290.7 million, and net investment income (NII) of $181 million.
The nearly $4.4 billion debt portfolio that Hercules manages is spread across 136 companies with maturities of 36 – 48 months. The effective yield on those loans of 13.4 percent is well above the yield it is paying out to its shareholders, in addition to the $653 billion in liquidity it can tap into when needed.
Putting an equal amount of money in these three stocks would produce an average annual dividend yield of 5.5 percent. It would also provide indirect exposure to the AI data center trade in the form of infrastructure, power, and financing.
The three companies I’ve outlined today share one key feature: none of them require you to predict which AI model or cloud platform ultimately wins. A data center REIT gets paid to house AI infrastructure regardless of whose hardware fills it. A power utility gets paid to deliver electricity regardless of which company consumes it. A business development company gets paid interest on loans to the sector regardless of which bet pays off. That same framework — follow the buildout, own the layer that gets paid either way — runs through the full Personal Finance AI portfolio. My briefing lays out the complete roster.