Source: Exelon. 

Investors have been hunting for a "magic metric" for as long as stock markets have existed. Of the myriad metrics around, return on equity, or ROE, has become a favorite first stab for judging a company's worth. But for the wise investor, there's a clearer calculation out there -- one that can ultimately separate the winner stocks from the losers. Let's look at two utilities that offer giant dividends -- Exelon (NYSE:EXC) and Xcel Energy (NASDAQ:XEL) -- to see which is worth its weight.

The magic metric
Return on equity measures the percentage of net income that is returned to shareholders. In this case, Exelon manages an 8.2% ROE, while Xcel Energy ups the ante to 10.1%.

Nearly a century ago, DuPont delved deeper to get at the questions investors really want to know. This extended DuPont model splits ROE into five ratios, each of which tells an interesting investment tale.

Here's how the ratios stack up for Exelon and Xcel Energy:




Pre-Interest Pre-Tax Margin



Asset Turnover



Interest Burden



Tax Efficiency



Equity Multiplier



Source: Data from S&P Cap IQ

Xcel leads in nearly every category. The utility sets itself up for success with a strong starting point -- its pre-interest pre-tax margin is a full 3 percentage points higher than Exelon's. While that number is partially determined by corporate practice, it's also steeped in regulation.

In the company's latest second-quarter earnings report, roughly 80% of Xcel Energy's electric margin improvements came from retail rate increases across six states. This alone added $38 million to its coffers for the quarter.

For the same quarter, lower realized energy prices put a crimp in Exelon's unregulated generation earnings, which accounted for just over 50% of its total adjusted earnings.

When it comes to taxes, Xcel also seems to be on Uncle Sam's good side. The utility scored a solid 0.04 points higher than Exelon Corporation. This metric reveals the other side of pre-tax margins, and Xcel has managed to hang on to its lead.

As slow-moving mega-corporations, asset turnover isn't an all-important indicator, but interest burden is essential. Utilities take out massive loans to cover large infrastructure projects, and Exelon is losing more of its money to interest expenses than Xcel. Xcel also recently announced it plans to shave an additional $5 million off interest expenses for fiscal 2014. That's small money, but it tells investors that Xcel isn't looking to expand its interest burden; its lower equity multiplier reaffirms that message.

Foolish takeaway
This breakdown provides the complete story for the 1.9 percentage point difference between two companies' ROE. Xcel Energy enjoys a fatter margin, a faster business, smaller loan payments, and lighter taxes. For dividend stock investors, the current 0.1 percentage point difference between Exelon's 4% yield and Xcel's 3.9% makes the case even more compelling. Long-term investors can expect Xcel to do more with your money -- and give you more in return.

Justin Loiseau has no position in any stocks mentioned. The Motley Fool recommends Exelon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.