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Last Thursday, the European Central Bank (ECB) aggressively bought Italian bonds and pushed the 10-year Italian bond below the psychologically significant 7%. Historically, it was at that 7% level that Ireland and Greece found it no longer able to cover borrowing costs. Even though S&P 500 forward P/E of 12 is cheap, there are still plenty of uncertainties hanging over financial markets. For investors looking for protection from a chaotic market environment, utilities are still a relative safe place to be.

15 Largest Utilities

Dividend investors are generally interested in both attractive valuation metrics and strong profitability metrics. Followings are 15 Largest Utilities by market cap:

Name (Symbol)

Forward P/E

Yield

P/S

1y Target

American Electric Power (NYSE:AEP)

12

4.9%

1.2

$40.8

Consolidated Edison (NYSE:ED)

16

4.1%

1.3

$54.8

CPFL Energia S.A. (NYSE:CPL)

11

6.4%

1.8

$23.1

Dominion Resources (NYSE:D)

16

3.8%

2.0

$50.4

Duke Energy Corporation (NYSE:DUK)

15

4.9%

1.9

$19.5

Empresa Nacional de El (NYSE:EOC)

12

5.5%

2.8

$60.1

Enersis S A (NYSE:ENI)

12

4.1%

1.0

$25.6

Exelon Corporation (NYSE:EXC)

15

4.7%

1.5

$46.9

FirstEnergy Corporation (NYSE:FE)

14

4.9%

1.2

$47.9

NextEra Energy (NYSE:NEE)

12

4.0%

1.6

$60.0

Pacific Gas & Electric (NYSE:PCG)

11

4.5%

1.1

$46.9

PP&L Corporation (NYSE:PPL)

12

4.6%

1.8

$30.7

Public Service Enterprise (NYSE:PEG)

14

4.0%

1.5

$36.0

Southern Company (NYSE:SO)

16

4.3%

2.1

$43.0

Spectra Energy Corp (NYSE:SE)

16

3.8%

3.6

$29.6

Scores for Each Company

Each utility company has its unique strength. For example, American Electric Power (AEP) has a long-standing record of consistent dividend payments since 1910. The Nuclear Regulatory Commission has just wrapped up hearings on Southern Company's (SO) application for the first nuclear plant license in the U.S. in 30 years. NextEra Energy (NEE) further beefs up its renewable energy programs.

When picking stocks, it's very important to be non-emotional. I use 10 metrics below to rank these 15 stocks. In each category, the best stock is ranked the highest score,15, and the worst is 1:

Metrics

AEP

ED

CPL

D

DUK

EOC

ENI

EXC

FE

NEE

PCG

PPL

PEG

SO

SE

Yield

11

5

15

1

12

14

6

10

13

3

8

9

4

7

2

Payout

13

6

9

3

5

14

15

8

1

7

4

11

12

2

10

F. P/E

9

2

15

3

5

13

12

6

7

11

14

10

8

1

4

PEG Ratio

11

8

2

6

9

7

12

1

3

14

10

4

5

13

15

Debt/ CF

9

12

3

1

8

14

15

10

4

6

11

2

13

7

5

Debt / FCF

10

13

3

5

11

14

15

6

12

1

2

9

8

7

4

Price/Sales

12

11

7

4

5

2

15

10

13

8

14

6

9

3

1

Volatility

5

10

2

6

9

8

7

4

13

3

15

11

12

14

1

Short Ratio

9

3

1

8

5

10

14

2

15

7

13

6

11

12

4

1-Yr Gain

8

2

1

4

3

14

15

9

10

12

13

7

11

5

6

Total

97

72

58

41

72

110

126

66

91

72

104

75

93

71

52

The table above shows that among these 15 utilities, Enersis SA (ENI) has the highest total score of 126. It has the lowest payout ratio, debt to cash flow ratio, price to sales ratio and highest potential gain over the next 12 months.

Utilities ETFs

There are a dozen utility ETFs. The largest 2 are Utilities Select Sector SPDR (NYSEARCA:XLU) and Vanguard Utilities ETF (NYSEARCA:VPU). Followings are comparisons between U.S. and global utilities ETFs, which shows that global utilities have lower P/E and higher yield, but also higher volatility:

Fund Name (Ticker)

P/E

Beta

Yield

iShares Dow Jones US Util (NYSEARCA:IDU)

17.2

0.28

3.5%

iShares S&P Global Utilities (NYSEARCA:JXI)

14.8

0.55

4.2%

Four Concerns When Investing in Utilities:

1. Low Growth Rate

The Energy Information Administration forecasts that on average, electricity demand will grow at a slower rate over the next 25 years than it did over the past 25 years. Thus valuations of utility companies are restrained by the expected lower demand.

2. Heavily in Debt

Heavy capitals are required to replace inefficient, older generating units and upgrade the existing facilities. In order to enhance system performance and provide energy savings, many utilities also need to offer Smart Grid technologies and energy efficiency programs.

3. Stringent Regulations

The Environmental Protection Agency wants to impose the most stringent emissions rules the industry has ever faced.

4. Uncertain Future

The Japanese earthquake rewrote the future of nuclear power. The increasing cost of coal and the rapid development of shale gas in the U.S. could revolutionize electrical generation. Power-price volatility in un-regulated areas also adds more uncertainty to those utility companies’ future earnings.

Conclusion

“We don’t get paid for activity; we get paid for being right. As to how long we’ll wait, we’ll wait indefinitely”, according to Warren Buffett.

It had certainly been a trader’s market over the last few months. If you were able to make informed decisions and lucky enough to buy low sell high, you could make lots of money. The reality is that trading the market is not a winning game for lots of people.

Europe bond markets smell recession. U.S. congressional super committee is still fighting on how to cut $1.2 trillion from the budget. In roller coaster market, conservative investors could stick to low volatility high dividend utilities to help smooth out the ride. Even though there are quite a few risks associated with this industry, utilities tend to thrive even in bad times.

Note: Data is from iShares, Yahoo and Google Finance and is valid as of November 12, 2011.

Source: 15 Largest, High-Dividend-Yield Utilities: A Scorecard