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In a previous article I outlined anchor stocks for a dividend portfolio. There is another specific type of stock that income portfolios should be looking for. Every dividend income portfolio should own utilities. Utilities offer a reliable source of income with a very gradual price appreciation. Utilities are highly regulated legal monopolies that provide valuable services to consumers. Below I have listed five utility companies that dividend income investors should consider for their income portfolio. When analyzing utility stocks I believe there are four pieces of information that you should analyze.

  1. Customer Base: It is very important that if you choose a utility to invest in, you look for a utility with a large customer base. Large customer bases are able to absorb price increases and are in need of established and reliable utilities.
  2. Dividend Yield: Utility companies need to offer a reliable dividend return in order to qualify for a dividend portfolio.
  3. Dividend Growth Rate: Utility companies need to offer reliable dividend growth rates. The growth rate does not have to very large, just enough to keep up with annual inflation rates. If increases do not keep up with inflation the investor risks falling behind the inflation adjusted return rate.
  4. Share Price Growth Rate: Utility company share prices offer low appreciation rates. You do no need to look for large share price growth. The share price needs simply to remain the same or have a gradual growth rate. A falling share price would signal a stock to avoid regardless of dividend yield or dividend growth rate.

Southern (NYSE:SO)

  • Customer Base

The Southern Company operates as an electric utility company. It is involved in the generation, transmission, and distribution of electricity through coal, nuclear, oil and gas, and hydro resources. It serves 4,412,000 retail and wholesale customers in the southeast United States.

  • Dividend Yield

SO currently pays a $0.49 per share dividend quarterly for an annualized yield of 4.4%. SO has raised its dividend for 11 consecutive years.

  • Dividend Growth Rate

SO has a five-year annualized dividend growth rate of 4.0%. This is well above average inflation rates.

  • Share Price Growth Rate

SO share price has increased from $36.37 on January 2, 2008, to $44.35 on January 2, 2013. That is a 21% increase over that time frame. This is a nice bonus but not always expected.

American Water Works (NYSE:AWK)

  • Customer Base

American Water Works Company, Inc., through its subsidiaries, provides water and wastewater services to residential, commercial, industrial, public and other customers in the United States and Canada. It serves approximately 15 million people with drinking water, wastewater, and other water-related services in approximately 30 states and two Canadian provinces.

  • Dividend Yield

AWK currently pays a $0.25 per share dividend quarterly for an annualized yield of 3.2%. AWK has raised its dividend for four consecutive years.

  • Dividend Growth Rate

AWK has a five-year annualized dividend growth rate of 5.0%. This is well above average inflation rates.

  • Share Price Growth Rate

AWK's share price has increased from $21.51 on April 23, 2008, to $37.97 on January 2, 2013. That is a 76% increase over that time frame. This is a nice price increase primarily due to the fact that this company has only been public for a couple of years.

American Electric Power (NYSE:AEP)

  • Customer Base

American Electric Power generates electricity using coal and lignite, natural gas, nuclear energy and hydroelectric energy. The company also supplies 5.3 million customers with electric power. In addition, the company transports coal and dry bulk commodities primarily on the Ohio, Illinois, and lower Mississippi rivers. It owns and leases approximately 2,600 barges, 45 towboats and 25 harbor boats. The company operates primarily in the states of Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia, and West Virginia.

  • Dividend Yield

AEP currently pays a $0.47 per share dividend quarterly for an annualized yield of 4.2%. AEP has raised its dividend for three consecutive years.

  • Dividend Growth Rate

AEP has a five-year annualized dividend growth rate of 3.57%. This is in line with average inflation rates.

  • Share Price Growth Rate

AEP's share price has increased from $44.63 on April 23, 2008, to $44.49 on January 2, 2013. This is an example of a company that does not offer great price appreciation but keeps paying dividends.

Aqua America Incorporated (NYSE:WTR)

  • Customer Base

Aqua America, Inc., through its subsidiaries, operates regulated utilities that provide water or wastewater services in the United States. The company serves 3 million customers in Pennsylvania, Texas, North Carolina, Ohio, Illinois, New Jersey, New York, Florida, Indiana, Virginia, Maine, and Georgia.

  • Dividend Yield

WTR currently pays a $0.175 per share dividend quarterly for an annualized yield of 2.5%. WTR has raised its dividend for 20 consecutive years.

  • Dividend Growth Rate

WTR has a five-year annualized dividend growth rate of 6.59%. This is well above average inflation rates.

  • Share Price Growth Rate

WTR's share price has increased from $18.43 on April 23, 2008, to $26.83 on January 2, 2013. That is a 45% increase over that time frame.

Consolidated Edison (NYSE:ED)

  • Customer Base

Consolidated Edison of New York, Inc., provides electric services to approximately 3.3 million customers in New York City and Westchester County; gas to approximately 1.1 million customers in Manhattan, the Bronx and parts of Queens, and Westchester County; and steam to approximately 1,735 customers in parts of Manhattan.

  • Dividend Yield

ED currently pays a $0.605 per share dividend quarterly for an annualized yield of 4.3%. ED has raised its dividend for 38 consecutive years.

  • Dividend Growth Rate

ED has a five-year annualized dividend growth rate of 0.85%. This is below average inflation rates.

  • Share Price Growth Rate

ED's share price has increased from $43.57 on April 23, 2008, to $56.47 on January 2, 2013. That is a 30% increase over that time frame.

Summary

If you are an income seeking investor then you must look to add utilities to your portfolio. They are a great way of generating a reliable source of income that grows with or above inflation. Do not expect large share price growth. If you pick the correct utility company, share price appreciation is possible and a nice benefit. Please reply in the comments section below and let me know what utility companies you are using in your portfolios.

Source: 5 Utility Stocks For Your Income Portfolio