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Jim Cramer is the co-founder and the chairman of the TheStreet.com, Inc. Cramer’s TheStreet.com lists 10 top stocks in each industry day by day. As I was checking out its top stock picks, I realized seven dividend-paying electric utility stocks were among its top picks.

Utility stocks are among the best dividend payers in the market. However, their performance is underappreciated by many investors. These stocks are usually viewed as “boring” stocks with limited upside potential. It is true that utility stocks have pretty low Beta values.

Nevertheless, these companies provide substantial dividends plus capital appreciation. In the last 10 years, shareholders of diversified utility companies enjoyed an annualized return of 9.61%. During the same period, S&P 500 (SPY) returned only 3%, annually. For the long-term oriented investor, utility stocks offer substantial profits with lower volatility.

Company

Dividend Yield

EPS growth next 5 years

Street.com Rating

DD O-Metrix

My Take

Duke Energy (DUK)

5.32%

4.03%

A

5.75

Buy

Pinnacle W. (PNW)

4.86%

6.48%

A-

5.71

Buy

Westar (WR)

4.92%

6.17%

A-

5.65

Buy

NextEra (NEE)

3.95%

5.79%

A-

5.61

Buy

UIL Holdings (UIL)

5.26%

4.03%

A-

4.69

LT Buy

Southern Co. (SO)

4.59%

5.91%

A

4.61

LT Buy

ITC Holdings (ITC)

1.89%

15.29%

A-

4.48

LT Buy

Data obtained from Finviz/Morningstar and is current as of Sept. 2.

Charlotte-based Duke Energy is an integrated energy company operating through three segments: U.S. franchised electric and gas, commercial power, and international energy. Duke Energy has the highest DD O-Metrix score among the list. It is a stock to buy on dip, but such opportunities rarely arise. Duke Energy returned almost 200% since 2004 excluding dividends. As of September 3, the stock is trading at a P/E ratio of 17.33 and a forward P/E ratio of 12.94. Analysts estimate 4% EPS growth for the next five years. With a "nifty" yield of 4.03%, Duke has a DD O-Metrix score of 5.75.

Pinnacle West Capital Corporation is a retail and wholesale electric services provider with operations concentrated on Arizona. The company also owns several minority interests in energy-related ventures. While the payout ratio is higher than 100%, I think it is sustainable. Pinnacle West Capital returned more than 100% since 2004 excluding dividends. Year-to-date return is 8.09%. As of September 3, the stock is trading at a P/E ratio of 15.53 and a forward P/E ratio of 12.85. Analysts estimate 6.5% EPS growth for the next five years. With a "nifty" yield of 4.86%, Pinnacle West has a DD O-Metrix score of 5.71.

Westar Energy has been a slow but steady mover. The stock returned 6% since January. It has a low Beta of 0.61. EPS is expected to increase by 41.19% this year. DA Davidson has a target price of $30, implying 16% upside potential. As of September 3, the stock is trading at a P/E ratio of 15.21 and a forward P/E ratio of 13.14. Analysts estimate 6% EPS growth for the next five years. With a "nifty" yield of 4.92%, Westar has a DD O-Metrix score of 5.65.

NextEra Energy is a dividend pick for the next five years. Dividends increased by almost four-fold from the 2001 value of $0.56 to $2 in 2010. It looks like a company policy to increase dividends by at least 10% every year. Barclays has a target price of $61, implying 12% upside potential. As of September 3, the stock is trading with a low P/E ratio of 12.67 and a lower forward P/E ratio of 11.74. Analysts estimate 5.8% EPS growth for the next five years. With a "nifty" yield of 3.95%, NextEra has a DD O-Metrix score of 5.61.

UIL Holdings engages in the transmission of electricity in Connecticut. The company also provides natural gas distribution services in Connecticut and Massachusetts. The stock is in an upward trend. Since its dip of $15 in 2009, it returned almost 75% excluding dividends. The year-to-date return is 5.95%. As of September 3, the stock is trading with a P/E ratio of 15.21 and a forward P/E ratio of 13.14. Analysts estimate an annualized EOS growth of 6.17% for the next five years. With a yield of 4.92%, UIL Holdings has a DD O-Metrix score of 4.69.

Michigan-based ITC Holdings operates as conduits, transmitting the power from generators to local distribution centers. The company is highly profitable with an operating margin of 52.39% and a net profit margin of 21.89%. ITC has been an outperformer, returning 9% in the last quarter and 22.84% since January. ITC’s performance is admirable. Shareholders enjoyed annualized returns of 19% in the last five years. As of September 3, the stock is trading with a relatively high P/E ratio of 24.17 and a forward P/E ratio of 18.40. However, analysts have pretty bullish EPS growth estimate of 15.29% for the next five years. With a yield of 1.89%, ITC has a DD O-Metrix score of 4.48.

Southern Company is among the most widely held stocks in the markets. It is a company policy to pay increasing dividends every year. Atlanta-headquartered Southern Company has a very low Beta of 0.32. The stock has been one of the best performers in market, doubling its value in the last six years excluding dividends. Year to date return is 11.64%. As of September 3, the stock is trading with a relatively high P/E ratio of 17.51 and a forward P/E ratio of 15.24. Analysts estimate an annualized EOS growth of 5.91% for the next five years. With a yield of 4.59%, Southern has a DD O-Metrix score of 4.61.

Source: 7 High-Dividend Electricity Stocks