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In the first part of my utility outlook article I reviewed 2012's performance and discussed 2013 outlook of the utility sector. In this article I will discuss five utility companies on which I am bullish. These companies offer strong and safe dividend yields, have decent growth expectations by analysts and have attractive ROEs. Also, I have graphed cash flow from operation and dividend relationship for each company which highlight that the dividends offered by the companies are safe. The following table shows the five companies which I have chosen.

Dividend Yield

Exp. 5 Years Growth Rate/Annum

ROE

Southern Company (NYSE:SO)

4.6%

5%

12%

NextEra Energy, Inc. (NYSE:NEE)

3.3%

6%

14%

Duke Energy Corporation (NYSE:DUK)

4.7%

3%

6%

CMS Energy Corp. (NYSE:CMS)

3.9%

6.2%

11%

CenterPoint Energy, Inc. (NYSE:CNP)

4.1%

5.5%

10%

Source: Yahoo Finance

SO
Southern Company, with 4.4 million customers, is amongst the leading utility companies of the U.S. The company has a regulated generational capacity of 35,000 MW and wholesale capacity of 8000 MW. SO has annual revenue of $17.5 billion. Analysts are expecting a growth rate of 5% per annum for the next five years. Also, it has high ROE of 12%.

Other than an attractive growth rate and ROE, it has a high dividend yield of 4.6%. I believe dividends offered by the company are sustainable, evident by the strong past relationship between SO's operating cash flow and dividends (as shown in the graph below). Furthermore, the company has a strong dividend history of 258 consecutive quarters. The following charts show a strong CFO and dividend relationship and separately show quarterly dividends for the last five years.

(Click to enlarge) Source: Annual Reports and Ycharts

NEE
NextEra Energy has annual revenues of approximately $15 billion and is a leading clean energy company with more than 41,000 MW of generational capacity. It has strong fundamentals, reflected by its high ROE of 14% and a decent dividend yield of 3.3%. If we look at the graph below, which shows that the company did not face any problem in covering its dividend payment in the past, we may conclude that the yield is sustainable. Also, the company has increased its quarterly dividends from 44 cents in 2009 to 60 cents in 2012. Analysts are expecting 6% growth rate per annum for next five years. I am bullish on the stock given its decent dividend yield of 3.3%, high ROE 14% and high growth prospects.

(Click to enlarge) Source: Annual Reports and Ycharts

DUK
Duke Energy is a large and diversified utility company in the U.S. The company is expected to register healthy financial performance in future. Analysts are expected a growth rate of 3% per annum for the next five years. DUK offers a safe and high dividend yield of 4.7%. The charts below show strong relationship between cash flow from operations and separately display dividend payments. Also, the company has a strong dividend history, evident by the fact that the company has never missed quarterly cash dividend in the last 86 years. The company has increased its dividends at approximately 3% per annum.

In current fiscal year, the company is expected to benefit from two rate cases in Carolinas. Also, DUK is expected to decide on the future of Crystal River 3 nuclear plant, whether to retire or repair the plant.

(Click to enlarge) Source: Annual Reports and Ycharts

CMS
CMS Energy Corp. operates as an energy company mainly in Michigan. The company has three reporting segments: Electric Utility, Enterprises and Gas Utility. CMS has annual revenues of $6.5 billion. Analysts are expecting a high growth rate of 6% per annum for the next five years; supported by the company's infrastructure spending plan of approximately $7 billion.

It also has a high ROE of 11% and offers attractive dividend yield of 3.9%. The company's past CFO and dividend relationship indicates the company has comfortably covered dividend payments. Also, the graph below shows that the company has increased its dividends at a healthy rate of approximately 30% per annum for the last five years. The company offers a decent growth opportunity and safe dividend yield of 3.9%, therefore I am bullish on the stock.

(Click to enlarge) Source: Annual Reports and Ycharts

CNP
CenterPoint Energy is engaged in the transmission and distribution of electricity in the U.S. The company has annual revenues of approximately $7.5 billion. In the last five years the company has increased its EPS at 6% per annum. CNP has a decent ROE of 9.5% and analysts are expecting five years growth rate of 5.5% per annum. The company offers a healthy dividend yield of 4.1%.The graph below shows a strong CFO and dividend relationship indicating CNP has a safe dividend yield.

(Click to enlarge) Source: Annual Reports and Ycharts

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: Utility Sector Outlook For 2013 And A Review Of 2012 Performance - Part B (5 Utility Stocks To Buy For 2013)