The electric power utility gave 4% to 6% earnings growth for a few years out as acceptable and it will separate its Ohio businesses. For 2012, AEP sees $3.05 to $3.25 EPS versus Thomson Reuters targets of $3.17 EPS.

AEP has noted a refocus on its transmission business and putting capital to work in the regulated generating fleet to comply with new EPA regulations. The regulated units generate a significant portion of AEP’s earnings and supports its dividend.

The company is filing with the Federal Energy Regulatory Commission to separate its Ohio businesses and it will terminate and then replace its Interconnection Agreement for its eastern generating assets under a new power cost sharing arrangement. The Public Utilities Commission of Ohio approved AEP’s plan back in January to move forward with the separation of its Ohio generation assets.

As far as FERC is concerned, the company expects that the FERC will decide on the implementation of corporate separation and the termination and replacement of the Interconnection Agreement in the first quarter of 2013.

On a day when the DJIA is down 1%, AEP is up 0.3% at $39.50 and the 52-week trading range is $33.09 to $41.98.

AEP’s dividend should not just be safe ahead… it should still grow even with the coal risks which could lie ahead.

JON C. OGG

Demand for coal, both the thermal variety used for generating electricity and the metallurgical coal used in steel making, declined in 2011 as coal-fired plants have been shut down in favor of gas-fired plants and demand for steel has dropped.

In the US, gas-fired plants account for about 39% of total generation capacity, but these plants have traditionally been used to meet demand spikes because natural gas was more expensive than coal. With gas prices so low (about $2.49/thousand cubic feet today), coal miners have to lower prices or reduce production or both.

A quick look at coal mining companies’ valuations is enlightening.

Alpha’s share price at around noon today is $23.19 in a 52-week range of $15.49-$61.66. The consensus target price on the stock is $29.50, for a potential upside of 27%.

Patriot’s share price is $9.19 in a 52-week range of $6.92-$27.56. The consensus price target on the stock is $11.50, for a potential upside of 25%.

Peabody’s share price is $38.38 in a 52-week range of $30.60-$73.95. The consensus price target for the stock is $49, for a potential gain of about 28%.

Consol’s share price today is $37.34 in a 52-week range of $30.56-$56.32. The consensus price target is $50, for a potential upside of 34%.

Arch Coal’s share price is $15.39 in a 52-week range of $13.09-$36.99. The consensus price target is $22, for a potential upside of about 43%.

Market Vectors Coal ETF (NYSE: KOL) is down 0.4% at $37.17 and is 52-week trading range is $27.42 to $51.87.

Share price highs for all the coal miners is down by -24% to -64%, with Consol down the least and Patriot down the most. Our pick from among these would have to be Peabody, primarily for its strength overseas. The others are either closing shafts or soon will be.

The boom in shale gas production not only weighs down natural gas prices, but will continue to weigh on coal prices. About the only thing that can help here, is lower natural gas production, and that may be starting to happen.

Paul Ausick

Solar makers are trying to stage a recovery.  First Solar, Inc. (NASDAQ: FSLR) is the leader of the pack in quality and operations and its shares are up about 9% at $42.30 versus a 52-week trading range of $29.87 to $175.45.  Even more impressive is the move in shares of MEMC Electronic Materials Inc. (NYSE: WFR) with a 17% gain to $4.58 versus a 52-week range of $3.65 to $15.04.  Even the Guggenheim Solar (NYSE: TAN) ETF and the Market Vectors Solar Energy ETF (NYSE: KWT) are surging.  We are paying close attention to SunPower Corporation (NASDAQ: SPWR), Suntech Power Holdings Co. Ltd. (NYSE: STP), Yingli Green Energy Holdings Co. Ltd. (NYSE: YGE), LDK Solar Co. Ltd. (NYSE: LDK), Energy Conversion Devices, Inc. (NASDAQ: ENER) and others as well.  Here are the other movers with relative prices to their 52-week highs:

• SunPower Corporation (NASDAQ: SPWR) is up 9.5% at $7.33, down from a year high of $23.36;
• Suntech Power Holdings Co. Ltd. (NYSE: STP) is up a whopping 25% at $3.22 versus a year high of $10.83;
• Yingli Green Energy Holdings Co. Ltd. (NYSE: YGE) is up 17% at $4.85 versus a year high of $13.59;
• LDK Solar Co. Ltd. (NYSE: LDK) is up 11.3% at $5.21 against a high of $14.97 in the last year, although it is easy to stick by the guns that LDK is mathematically bankrupt without the coverage of the Chinese government.
• Energy Conversion Devices, Inc. (NASDAQ: ENER) is up 23% at $0.38 against a high of $4.80 but this is one still is unlikely to survive 2012.

In the world of ETFs, these are running as well: Guggenheim Solar (NYSE: TAN) is up 10.5% at $2.95 versus a high of $9.16 and Market Vectors Solar Energy ETF (NYSE: KWT) is up 11.5% at $4.45.  The more diversified alt-energy ETF of PowerShares WilderHill Clean Energy (NYSE: PBW) is up less than all of these with gains of 4.8% at $5.65.

Before getting too euphoric keep in mind that this is not unusual at the start of a year or new period where sector rotation favors the most beaten up sector.  Besides that, there is always the political angle on the solar sector that is front and center in the elections this year.

What we do know within reason is simple: solar PV unit prices cannot drop by another 50% or so in 2012.  If pricing has bottomed, perhaps these value traps may get to migrate to value stocks after all.  We still expect margin pressure, austerity, and a lack of the ability to pay dividends to all equal concerns of PV panel dumping by Chinese firms leading to a virtual race toward zero.

If you want to know just how big this news is, the S&P Utility Sector was the best performing sector in all of 2011 and its gains were not quite 15%.  To prove the point, the Utilities Select Sector SPDR (NYSE: XLU) ETF rose by 19% in 2011 if you adjust for the dividend payments as so many utilities offer investors dividend yields of 4% and higher.

JON C. OGG

Each year, you often see the same trend over and over: “Buy the weakest sectors and dump the strongest.”  Maybe there is a value in the weakest links and maybe too much a premium in the strong sectors.  The Financial Select Sector SPDR (NYSE: XLF) is off to a great start in 2012, while the Utilities Select Sector SPDR (NYSE: XLU) has been very weak.

All you have to do is look at the extremes… Bank of America Corporation (NYSE: BAC) was the worst DJIA stock of all in 2011 but now shares are up literally 19% since the end of 2011.  J.P. Morgan Chase & Co. (NYSE: JPM) is even up over 9% since the end of 2011 and it has earnings due in just two days.  With the huge discounts to book value, the thought is that there is value even with the headwinds facing the banking sector’s ability to generate solid earnings.  BofA was recently shown as one of the DJIA stocks with the most implied upside.

What about American Electric Power Co., Inc. (NYSE: AEP) bounced a bit off the lows in the last two days but its shares had been down almost 2% so far this year after just six trading sessions. Duke Energy Corporation (NYSE: DUK) was down almost 3% from the end of 2011 before a small bounce.  Many utilities are trading at close to 13-times earnings now, which historically could imply a premium being paid to get those dividend yields of 4% and higher.  AEP remains in our 2012 Model Dividend Portfolio and that will only change if the price rises too much.

All you are seeing is a reverse of the flight to safety because many believe that the economy has escaped another recession or that the worst was priced in.  Before giving up entirely, interest rates are likely to remain very low and that drives investors toward stable income sources.  Utilities also win from low interest rates because of borrowing costs.  As far as the banks, the woes of Europe are not yet gone and the utilities have little to no real exposure there.  If everyone is wrong about no second recession, which has better visibility… utilities or banks?

JON C. OGG

It turns out that many stocks with high dividend yields are now more attractive than sovereign debt in the U.S. and abroad. Part of the allure, besides income or reinvestment, is that dividend stocks often hold up better than other investments during jittery markets. It is hard to imagine, but the high-yield utility sector was one of the top performers of the S&P in 2011. In some cases, half of an investor’s total return through time may come from dividends. Warren Buffett generally picks dividend-paying companies for Berkshire Hathaway Inc. (NYSE: BRK-A) after following some of the principles of Benjamin Graham.

The 24/7 Wall St. 2012 Model Dividend Portfolio includes the following stocks: American Electric Power Co., Inc. (NYSE: AEP); American Water Works Company, Inc. (NYSE: AWK); AT&T, Inc. (NYSE: T); General Electric Co. (NYSE: GE); Government Properties Income Trust (NYSE: GOV); Kimberly-Clark Corporation (NYSE: KMB); Senior Housing Properties Trust (NYSE: SNH); and Wal-Mart Stores Inc. (NYSE: WMT).

While exchange-traded products have been avoided in the past, recent trends merit a look at the open-end or closed-end mutual funds and ETF products as follows: SPDR Barclays Capital High Yield Bond (NYSE: JNK); JPMorgan Alerian MLP Index ETN (NYSE: AMJ); ALPS Alerian MLP ETF (NYSE: AMLP); and PowerShares Financial Preferred (NYSE: PGF).

Lastly, there have been some exits due to upside price performance: Altria Group Inc. (NYSE: MO); Digital Realty Trust Inc. (NYSE: DLR); Enterprise Products Partners LP (NYSE: EPD); and Kinder Morgan Energy Partners LP (NYSE: KMP).

We have described the features and outlook for each component of our Model Dividend Portfolio.

Rather than chasing market share, solar makers need to hold the line on supply increases, keep inventories under control, and, most important, return to profitability. The CEO of Taiwan’s Giga Solar Materials Corp. told Digitimes that he expects the market for solar panels to improve by the second quarter of the year.

Giga Solar makes the conductive aluminum paste used in solar cell manufacturing, and the company expects sales growth of 10-12% in 2012. Sales of silver paste are expected to post “tremendous growth” this year.

This prediction is based on fourth-quarter 2011 inventory clearing which should restore the supply/demand balance and help stabilize prices. Then production needs to be rationalized.

According to Solarbuzz, total shipments in 2012 need to be reduced by 4,900 megawatts from the industry’s goal of 28,200 megawatts. The industry research firm also notes that year-end inventories are estimated to be around 7,300 megawatts, down from a previous estimate of 8,600 megawatts.

The first calendar quarter of the year is a traditionally tough one for solar makers as the weather makes installations problematic. During the first quarter we could see prices and margins continuing to fall. As the weather improves so should demand, although Germany’s 15% feed-in tariff reduction will like cause a further decline in orders from German buyers.

The report in Digitimes is giving solar stocks a shot in the arm today. Yingli is up more than 8% at $4.11 in a 52-week range of $2.75-$13.59. First Solar shares are up more than 5% at $35.50 in a 52-week range of $29.87-$175.45. Sunpower’s shares are also up more than 5% at $6.56 in a 52-week range of $4.94-$23.36. Suntech shares are up about 3.5% at $2.29 in a 52-week range of $1.70-$10.83. The DJIA is up nearly 2% this morning.

Paul Ausick

Don’t bother telling the solar woes to Google Inc. (NASDAQ: GOOG) and to KKR & Co. L.P. (NYSE: KKR).  The two companies announced that they would invest a total of $189 million on a combined basis domestically in solar facilities.  Some $94 million will be invested by Google to fund four California solar farms which are being constructed near Sacramento.  KKR’s $95 million investment is said to include new unannounced projects as well as the  Sacramento projects.  Sharp Corporation’s Recurrent Energy is selling the existing projects.

It is easy to bash solar stocks right now because their losses have been beyond what most could conceive.  Still, Warren Buffet’s MidAmerican Energy under Berkshire Hathaway Inc. (NYSE: BRK-A), NRG Energy Inc. (NYSE: NRG), and others have continued to invest.  What is interesting is that it is currently one of the best times to invest in solar projects, as long as your financial lifeline is not dependent upon the margins of manufacturing the solar panels.

First Solar Inc. (NASDAQ: FSLR) might be building a large Arizona desert solar farm but the company has proven that it is far from immune to the woes of the sector.  Whether or not the mandated California utility one-third renewable goal by 2020 can help is so far not helping these companies out.

The good news for solar power buyers is that there are still some financial incentives and panel prices have tanked.  Europe is in austerity-hell that is keeping its solar ambitions lower and China has been flooding the market with cheap solar panels (are those knock-off solar panels?).

Google’s side-bar projects do not have to have the same return as its search business, but the Internet search giant has now committed close to $1 billion into various forms of clean energy investing.  Roughly half appears to be in solar of some sort.

To show just how brutal the solar investing has been, take a look at the two key solar ETF products.  The TAN Guggenheim Solar ETF (NYSE: TAN) trades at $2.71 and the 52-week trading range is $2.54 to $9.16; and the Market Vectors Solar Energy ETF (NYSE: KWT) trades at $3.89 versus a 52-week range is $3.64 to $14.33.

JON C. OGG

The dividend yield is roughly 4.7% and it pays out close to 60% of its expected income as dividends. It also has a double-digit return on equity and it trades at just under 12.5-times expected 2012 earnings estimates. Shares are trading around $39.75 and its consensus price target is about $41.10. Our own internal target is actually $44.00 on the stock and that means any pullbacks are buying opportunities. The dividend was just raised in November and we would not look for another dividend hike until late in 2012.

The giant utility has a new CEO and the stock is close to a 52-week high, but it also would have to rally another 25% or so before challenging its multiyear highs around $50.00. The utility sector is often invested in via the Utilities Select Sector SPDR (NYSE: XLU), of which AEP is a key component, but AEP is cheaper than many of the components inside the ETF. This sector is also one which many former CD-investors (certificates of deposit) are still buying into for high dividend yields.

Depending on pricing on any given market trading day, an alternative currently would be NextEra Energy, Inc. (NYSE: NEE) with a lower yield but with a dividend that should rise in the first quarter of 2012. PPL Corporation (NYSE: PPL) is another alternative with very close to many of the same financial characteristics as AEP.

AEP and other utilities will benefit from the low interest rate climate that Ben Bernanke has promised will continue through at least mid-2013. The company serves more than 5 million power customers and its geographic footprint spans 11 states. Finally, AEP has been decreasing its coal mix, and that is on the path to drop to under half of its power generation fleet share in the coming years.

Two issues to consider are that AEP is fighting many proposed regulations that would increase the costs for it and its rivals. AEP may also choose to use its financial strength to make selective acquisitions here and there.

If you want to receive the full 24/7 Wall St. 2012 Model Dividend Portfolio, it is being offered in full, with more than 10 different stocks, to those who sign up for our free daily email subscriber list below. Each morning we send our free email list subscribers a snapshot of the key feature stories, the top daily analyst upgrades and downgrades, previews for key events and many other aspects governing your finances.

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The ITC bulletin noted that it has “made affirmative determinations in its five-year (sunset) reviews concerning Crystalline Silicon Photovoltaic Cells and Modules from China.  The USITC vote noted “Preliminary phase antidumping and countervailing duty investigations: Crystalline Silicon Photovoltaic Cells and Modules from China, Inv. Nos. 701-TA-481 and 731-TA-1190 (Preliminary)” today as the ITC sees threat or injury to U.S. solar firms from Chinese companies.

Seven US solar PV makers jointly filed the claim, but only the US unit of Germany’s SolarWorld was identified. Top US solar makers First Solar Inc. (NASDAQ: FSLR) and SunPower Corp. (NASDAQ: SPWRA) are not among the companies that signed on and no specific Chinese makers were identified in the complaint.

Leading makers like Trina Solar Ltd. (NYSE: TSL), JA Solar Holdings Co. Ltd. (NASDAQ: JASO), and LDK Solar Inc. (NYSE: LDK) are surely among the targets.  As far as LDK Solar is concerned, we have noted that this company is mathematically bankrupt without a guarantee from China.

Today’s news is not a registered victory as the outcome (and damage awards) are not yet known, but it is an indication that the U.S. solar players may get some margin stabilization ahead.

JON C. OGG

The company’s problems have not been overlooked by investors. The company posted a new 52-week low of $1.17 in early October and is hovering around $1.20-$1.25. The shares hit an all-time high of around $25 in mid-2007, but since mid-2008 shares have never gone above about $6.50. Shares traded at a high of $6.35 in early January of this year, but the delay in the federal loan guarantee and the soon-to-expire contracts combined with an EPS loss so far this year of -$0.37 weighs too heavily to bring shares back to anything approaching the January levels.

The answer to a simple question is likely to determine USEC’s future: does the US need its own state-of-the-art uranium enrichment facility, and if so should the government provide the loan guarantee to build it? The debacle with Solyndra and its $535 million loan would be almost small change if the $2 billion USEC loan is approved and then the company folded.

According to The New York Times, the Obama administration is considering a $300 million loan guarantee that would allow the company to prove that its centrifuges work as a pre-condition to the full loan amount to build the plant. But that’s one of those “in for a penny, in for a pound” deals. If the government guarantees even some fraction of the $2 billion, shares in USEC will rebound on the expectation that the rest will be forthcoming at some future date.

Once again, the Great Yogi gets the final word: it ain’t over till it’s over.

Paul Ausick