The No. 1 Most Popular Dividend Play in Utilities

As an investor, it doesn't pay to follow the crowd.

In this series, though, we highlight a possible exception -- the collective wisdom of our CAPS community. Read the next section if you're unfamiliar with our methodology. Skip it if you want to go straight to the results.

Why this crowd is different
Jumping into a stock because your rich neighbor did, or because you heard about it from your friend's uncle who used to work on Wall Street, or because CNBC has been talking about it nonstop is a recipe for disaster.

If there's one thing I've learned as a stock analyst, it's that any stock can be gussied up to sound like a world-beater. If there's a second thing I've learned, it's that being a smart person doesn't make you a good investor.

In the hands of a smart person with good communication skills, the never-were and never-will-be stocks sound like tickets to instant fortune. The ancient Greek philosophers made the distinction between rhetoric and knowledge. The former is convincing; the latter is true.

That's why we factor in track record in our Motley Fool CAPS community. We invite everyone to give stocks an outperform (akin to a "buy" call) or underperform rating (akin to a "sell" call) in CAPS. We then use those opinions to calculate a rating for each stock -- from one to five stars (five being the best). But -- and this is a big distinction -- we give more weight to the opinions of folks whose picks have performed well in the past.

The most popular utilities dividend play
So, with that methodology as prelude, I present to you the top four- and five-star-rated utilities stocks that yield 2% or more that have garnered the most outperform ratings by CAPS members. I used a minimum market capitalization of $100 million and the proviso that it must be listed on a major U.S. exchange. Remember, stocks are rated on a five-star scale by our CAPS community, so four- and five-star stocks are consensus outperforms.

Company

 Market Capitalization (in millions)

P/E Ratio

Dividend Yield

CAPS Rating (out of 5)

Outperform Picks

Duke Energy (NYSE: DUK  )

$22,998

33.5

5.6%

****

   1,724

Exelon (NYSE: EXC  )

$26,079

10.9

5%

*****

   1,496

NextEra Energy

$22,713

12.1

3.7%

*****

   1,086

Otter Tail (Nasdaq: OTTR  )

$691

77

6.2%

*****

   1,083

Huaneng Power International (NYSE: HNP  )

$7,321

10.1

4.5%

****

    922

Constellation Energy Group (NYSE: CEG  )

$6,174

1.3

3.1%

*****

    890

Southern Company (NYSE: SO  )

$30,653

14.8

4.9%

****

    808

Veolia Environnement (NYSE: VE  )

$11,933

13.5

5.1%

*****

    780

Source: Motley Fool CAPS. NM = not meaningful.

Four of these popular five-star rated utilities yield 5% or more -- Duke, Exelon, Otter Tail, and Veolia. However, keep in mind, it may be a chicken and egg thing, where the high yields attract more high ratings. Utilities are known for their high dividend yields and their ability to generate steady cash flows to pay those dividends. Because of the steadiness of their businesses, they also tend to be highly leveraged.

The four-star-rated Duke Energy garnered the most votes here. Which is your favorite utilities stock? Or are they all overrated? Make your thoughts known in CAPS by clicking here. Or just go there to do further research on one of these stocks.

Anand Chokkavelu doesn't own shares of any company mentioned. Exelon is a Motley Fool Inside Value pick. Otter Tail is a Motley Fool Hidden Gems selection. Duke Energy and Southern are Motley Fool Income Investor picks. The Fool owns shares of Exelon. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.


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