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Overview

Historically, Utility companies have been attractive investments because of their stable cash flow and dedication to strong dividend payouts to shareholders. Many dividend-paying industries have been hurt by uncertainties for the tax landscape for 2013. The Utilities SPDR ETF (NYSEARCA:XLU) yields approximately 4% and is up slightly more than 1% in the past year. It has underperformed the SPDR S&P 500 ETF (NYSEARCA:SPY) by around 12 percentage points for the past year. The below listed stocks all have market capitalizations of at least $15 Billion, dividend yields above 4% and trade for less than 14x 2013 earnings estimates. The list is meant as a base for further research.

PEG Dividend Yield Chart

PEG Dividend Yield data by YCharts

Public Service Enterprise Group (NYSE:PEG)

Market Cap: $15 Billion

Dividend Yield: 4.7%

Estimated 2013 PE: 12.8x

PSEG pays out a sizeable dividend and also trades for a reasonable earnings multiple. PSEG serves approximately 70% of New Jersey's population, and has had a busy few weeks dealing with the effects of Hurricane Sandy. The company has assets in NY, NJ, CT and PA. PSEG uses a few sources of energy to sell to its customers, such as Coal, Oil, Natural Gas and Nuclear. This diverse range of feedstock for its power plants mitigates potential risk from commodity price fluctuations of any one commodity. PSEG's generation cost per MWh has decreased by approximately 16% from Q3 2011 to Q3 2012. This remains an interesting play, given the uncertainty from Washington, and the effects of Hurricane Sandy. Investors will pay attention to see what additional costs the company has incurred as a result of the destructive hurricane.

American Electric Power (NYSE:AEP)

Market Cap: $21 Billion

Dividend Yield: 4.3%

Estimated 2013 PE: 13.7x

American Electric Power pays out a healthy dividend and trades at a similar earnings multiple to its peers. The company boasts that it has paid out dividends to shareholders for over 400 consecutive quarters. AEP serves customers in 13 states. The geographic diversity effectively insulates the company from outages and problems experienced in any one of its regions. In late November, the company announced that it was shuffling around its management team as part of plans to make the company more successful and efficient. The stock is up nearly 9% over the past year, outperforming the Utilities SPDR.

PPL (NYSE:PPL)

Market Cap: $17 Billion

Dividend Yield: 5%

Estimated 2013 PE: 11.9x

PPL has a high dividend yield, and trades for a reasonable earnings multiple. PPL operates in both the U.S. and in the United Kingdom. This geographic diversity should insulate PPL from outages in certain regions. The company boasts about the fact that it has paid dividends to shareholders for more than 260 consecutive quarters. The company should benefit if Washington comes to a compromise on the "Fiscal Cliff" that turns out to be favorable for the industry. The stock is slightly down over the past year.

Conclusion

Once Washington solves the issues at the heart of the "Fiscal Cliff" many will benefit from the transparency and clarity regarding the tax landscape for 2013. If the tax rates are found to be favorable for dividend investors, the above listed names will most likely benefit. The next few weeks will be key for the sector, and there is increased potential for volatility.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: 3 Utilities With 4-5% Dividend Yields To Buy For 2013