Natural Gas Utilities Emerge as Compelling Portfolio Addition Amid Rising Demand and Price Prediction Shifts

The U.S. natural gas market is experiencing a structural shift driven by multiple catalysts. Demand continues climbing due to the clean-burning characteristics of natural gas, with particularly strong growth from AI-driven data centers requiring 24/7 power, industrial reshoring efforts, expanding electric vehicle adoption, and seasonal heating needs during cold winters. As the nation transitions away from coal-fired generation, natural gas fills the supply gap—the U.S. Energy Information Administration (EIA) projects natural gas will contribute 40% of American electricity generation throughout 2025 and 2026. Meanwhile, rising LNG exports from the United States further amplify domestic demand for this critical energy source.

Market Tailwinds Support Distribution Utilities

Investors seeking stable returns should consider the capital-intensive gas distribution sector, where Atmos Energy Corporation [ATO] and Spire Inc. [SR] represent compelling opportunities heading into 2026. The infrastructure supporting natural gas distribution spans approximately 2.5 million miles of pipelines across the country, creating natural competitive moats for established utilities.

The broader economic environment favors utility investments. The Federal Reserve has reduced its benchmark rate by 175 basis points, dropping from a 5.25%-5.50% range to 3.50%-3.75%, with expectations for further cuts in 2026. Capital-intensive utilities directly benefit from declining interest rates, as lower borrowing costs improve profitability and enhance dividend sustainability.

Natural Gas Price Dynamics and Investment Outlook

Looking at natural gas price prediction metrics, the EIA forecasts prices will reach approximately $4.30 per million British thermal units (MMBtu) during the 2025-2026 winter season. Following this peak, natural gas price prediction models suggest a moderation to $4.00 in 2026 as production volumes increase and weather normalizes. This price trajectory supports the investment thesis for distribution utilities, which benefit from consistent throughput regardless of price fluctuations.

Gas utilities occupy a unique position within investment portfolios. They deliver essential services with predictable cash flows, generating reliable dividend payments that appeal to income-focused investors. In an environment where bond yields have compressed due to falling interest rates, utilities increasingly function as fixed-income alternatives.

Two Distribution Leaders Worth Considering

Using the Zacks Stocks Screener to identify gas distribution utilities with Zacks Rank #2 (Buy) ratings and beta below 1.0, two standouts emerge:

Atmos Energy Corporation operates the regulated natural gas distribution and storage business from its Dallas headquarters. The company is committing $26 billion through fiscal 2030 to upgrade transmission and distribution infrastructure, targeting 6-8% annual earnings growth during this investment cycle. Long-term earnings growth projections stand at 7.98%, while the current dividend yield of 2.34% exceeds the S&P 500 composite yield of 1.4%. With a beta of 0.75, ATO demonstrates lower volatility than the broader market—a characteristic highly valued by conservative investors. Over the past 60 days, analyst consensus estimates for fiscal 2026 and 2027 earnings have increased by 1.52% and 1.18%, respectively.

Spire Inc. pursues organic growth through systematic infrastructure expansion and operational innovation from its St. Louis base. The company recently increased its 10-year capital investment plan to $11.2 billion, now extending through fiscal 2035. This deployment supports a long-term adjusted EPS growth target of 5-7%, with fiscal 2027 adjusted EPS guidance at $5.75. The current dividend yield reaches 3.93%, while long-term earnings growth is projected at 10.54%. SR’s beta of 0.66 signals even greater stability than its peer. Notably, analyst consensus has revised fiscal 2026 and 2027 earnings estimates upward by 4.77% and 4.27% over the past 60 days.

Both companies have outperformed the broader Zacks Utilities sector over the past six months, validating their operational execution and market positioning as natural gas demand accelerates.