With Treasury bond yields in record low territory, investors looking for yield should consider getting a check from the electric, gas, or water company. Utility company stocks typically have high dividend yields, stable businesses, and considerably less volatility than the broad stock market.

To help find some candidate stocks, the CAPS screener searched for stocks meeting the following parameters:

  • Utilities sector.
  • CAPS rating of four or five stars (out of five) to focus on stocks the CAPS community believes are the best choices.
  • Price-to-earnings ratio less than 18 to weed out companies that don't have enough earnings to cover a juicy dividend.
  • Current dividend yield greater than 4.5% to generate more income than a 30-year Treasury.

The screen returned 31 stocks. For the next step, I researched growth estimates and payout ratios -- the percentage of earnings needed to cover the dividend -- to narrow the field.

Even in a boring utility stock, earnings growth is important. The numbers won't compare with a highflier like Apple, but if there isn't enough earnings growth to support some increases in the dividend, there isn't much reason to choose the stock over a bond.

Payout ratio is also important. Utility stocks typically pay out a large percentage of earnings as dividends, but numbers pushing 80%-90% or higher are a red flag that the dividend might not be sustainable.

I also didn't carry non-U.S. companies forward. There may be some great non-U.S. utility investments, but I didn't want the currency exchange risk for this drill-down. That whittled the list to the following seven stocks.

Company

Current Dividend Yield

Est. Annual Growth,
Next 5 Years

Payout Ratio

Black Hills (NYSE: BKH)

5.1%

6.0%

64%

Consolidated Edison (NYSE: ED)

5.5%

4.3%

72%

Duke Energy (NYSE: DUK)

6.1%

4.4%

104%

Exelon (NYSE: EXC)

5.5%

1.5%

51%

PG&E (NYSE: PCG)

4.5%

7.3%

53%

The Southern Company (NYSE: SO)

5.5%

5.1%

70%

Westar Energy (NYSE: WR)

5.8%

9.3%

83%

Source: Motley Fool Stock Screener and Yahoo! Finance.

The Southern Company's good dividend yield, combined with decent earnings growth projections, make it the leader of this pack in my book. Black Hills and Westar also look attractive, but don't have the size or geographic diversity of Southern. PG&E also sports a good growth projection, but its concentration in California concerns me. As always, screener output and quick-look research lists should not be considered a recommendation to buy, but just a starting point for more research.

Have an opinion on these stocks or utilities in general? Weigh in with a comment below.

Related Foolishness:

Exelon is a Motley Fool Inside Value selection. Apple is a Motley Fool Stock Advisor pick. Duke Energy and Southern are Motley Fool Income Investor choices. Motley Fool Options has recommended writing puts on Exelon. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Russ Krull does not have a position in any company mentioned in this article. The Fool has a high-voltage disclosure policy that lights our path.