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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Apple Inc. (NASDAQ: AAPL) Reiterated Overweight at JPMorgan; Reiterated Outperform at Credit Suisse; Reiterated Buy at Canaccord Genuity.
Apollo Group Inc. (NASDAQ: APOL) Raised to Outperform with $47 target at Credit Suisse.
Federated Investors, Inc. (NYSE: FII) named Bear of the Day at Zacks.
Google Inc. (NASDAQ: GOOG) Cut to Hold at Stifel Nicolaus.
Hewlett-Packard Co. (NYSE: HPQ) Cut to Underweight at JPMorgan.
Hess Corp. (NYSE: HES) maintained Buy but cut target to $85 at Argus.
The Home Depot, Inc. (NYSE: HD) Cut to Neutral at Goldman Sachs.
Mednax Inc. (NYSE: MD) Started as Neutral with $67 target at Credit Suisse.
Netflix, Inc. (NASDAQ: NFLX) Started as Neutral at Stern Agee.
Oracle Corporation (NASDAQ: ORCL) Reiterated Buy at Canaccord Genuity.
Plains All American LP (NYSE: PAA) named Bull of the Day at Zacks.
PP&L Corporation (NYSE: PPL) reiterated Buy with $31 target at Argus.
Walt Disney Co. (NYSE: DIS) Raised to Buy at Citigroup.
Yandex N. V. (NASDAQ: YNDX) Started as Underperform at Credit Suisse.
Yingli Green Energy Holding Co. Ltd. (NYSE: YGE) Cut to Sell at Citigroup.

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While many investors are opting for safety at any cost, there is an army of retirees and near-retirees that are depending upon income from their life savings in order to live, and these investors are being forced to look elsewhere in predictable dividend stocks and other instruments that they feel are low in risk. Utility stocks have accidentally become the new CDs and bonds for investors due to their safety, suitability and high dividends.

Generally speaking, utilities have fairly predictable earnings and they pay out a substantial portion of their income as dividends. Some utilities now pay dividends that yield more than 4% to investors. The power companies often have local competition in their local markets now due to deregulation and the ongoing regulatory pressure of carbon emissions is actually keeping a lid on some of the upside that might otherwise be there. The trick is for investors to find the utilities where the dividend is safe even if these companies are forced to spend the collective billions due to new environmental areas.

Utilities have not been immune to the market pressure this week, but the reality is that the sector was within about 2% or 3% of the yearly highs as recently as last Friday. A 5% sell-off in the past two days may be an opportunity for those investors with long-term outlooks. The utility sector appeals to many investors looking for income, value, predictable growth, and they also classify as defensive stocks. Investors used to look for the highest yielding CDs from insured banks and savings & loans, but now that opportunity is only found in utilities.

We have compiled a list of the key liquid exchange-traded funds and a closed-end funds for investors who want diversification. We have also screened out three of the top electric utility stocks for retail investors that offer the following minimum criteria: $5 billion in market value, a 4% or higher yield, not trading at a 52-week high but also not down more than 10% from the highs (avoiding the troubled players) and which also have 10% or more upside to the consensus analyst price targets from Thomson Reuters. Lastly, we have our top water utility in America that is slightly outside of the normal utility parameters for the power generation and electric utility companies.

In ETFs and Funds, we have highlighted the Utilities Select Sector SPDR (NYSE: XLU), iShares Dow Jones US Utilities (NYSE: IDU) and the Reaves Utility Income Fund (AMEX: UTG). In utility and generation companies we have identified American Electric Power Company (NYSE: AEP), FirstEnergy Corporation (NYSE: FE) and PP&L Corporation (NYSE: PPL). In the water utility sector, we have discussed American Water Works Company, Inc. (NNYSE: AWK). What matters most here is the current situation and opportunity on each. As we always stress: understand what you are investing in!

Other noteworthy companies with ratings news include PPL Corp. (NYSE: PPL), Domino’s Pizza, Inc. (NYSE: DPZ), Cemex, S.A.B. de C.V. (NYSE: CX), Entergy Corp. (NYSE: ETR), FedEx Corp. (NYSE: FDX), European Aeronautic Defence and Space N. V. (OTC: EADSY), and BHP Billiton plc (NYSE: BHP).

PPL Corp. (NYSE: PPL) received affirmation of its ‘Baa2′ rating from Moody’s on senior unsecured debt at its PPL Energy Supply subsidiary. At the same time, the agency affirmed its ‘Baa3′ rating on PPL’s issuer rating with a stable outlook. PPL is a classic defensive utility stock, with a forward dividend yield of 4.8%.

Domino’s Pizza, Inc. (NYSE: DPZ) postponed the issuance of $1.625 billion in senior unsecured notes leading S&P to withdraw its preliminary ‘BBB+’ rating on the notes. Domino’s stock price has more than doubled in the past 12 months.

Cemex, S.A.B. de C.V. (NYSE: CX) had its global scale ‘B’ rating and ‘mxBB+/mxB’ national scale corporate credit ratings placed on  CreditWatch with negative implications at S&P. One of the world’s largest cement makers, Mexico-based Cemex faces a slowdown in activity related to the weaker global economy. S&P also noted that it anticipates that Cemex “might need to renegotiate the credit conditions in its financing agreement with lenders, to avoid a covenant breach by year-end.” Cemex shares are trading up in the early afternoon today, at $3.43, in a 52-week range of $3.33-$11.15. The shares posted a new 52-week low yesterday.

Petroplus Holdings AG (OTC: PEPFF), a Swiss-based pure-play oil refiner, received a downgrade to its long-term credit rating from ‘B+’ to ‘B’ at S&P. This is interesting because Petroplus has been struggling for some time, and S&P especially notes weak refining margins in Europe and poor operating performance at Petroplus. US refiner Valero Energy Corp. (NYSE: VLO) recently purchased a refinery in the UK and one or more of Petroplus’s six European refineries may be available at an attractive price.

Entergy Corp.’s (NYSE: ETR) Entergy Louisiana LLC (NYSE: ELB) subsidiary received a ‘AAA’ rating on $207 million senior secured investment recovery bonds from S&P. The bonds are essentially risk-free because the company has an irrevocable right to recover its investment by raising rates. That’s why utility stocks are popular defensive plays.

FedEx Corp. (NYSE: FDX) and its Federal Express Corp. subsidiary received re-affirmation of issuer default ratings of ‘BBB’ from Fitch Ratings. FedEx’s senior unsecured credit facility and its senior unsecured debt were also affirmed at ‘BBB’. Fitch noted that the unsecured debt totaled $1.7 billion and the unsecured credit facility totals $1 billion. The agency’s outlook on FedEx is stable.

European Aeronautic Defence and Space N. V. (OTC: EADSY), makers of the Airbus, has had its long-term issuer default rating and its senior unsecured debt rating affirmed at ‘BBB+’ with a stable outlook by Fitch. EADS’s record backlog of 4,200 orders indicates strong revenue growth and the company’s solid cash position contributed to the rating.

BHP Billiton plc (NYSE: BHP) subsidiary Petrohawk Energy Corp. received an ‘A’ rating on its outstanding senior unsecured debt from Fitch. BHP itself had its long-term issuer default rating and senior unsecured ratings affirmed at ‘A+’. Fitch attributes the one-notch difference to the limited operational integration between mining company BHP and its newly purchased Petrohawk oil & gas business, as well as change-of-control language for the 2014-15 bonds that sets the re-purchase premium so low that few takers are expected.

Paul Ausick

Some of the more recent dividend hikes in the utility sector have been in shares of Duke Energy Corporation (NYSE: DUK), American Water Works Company, Inc. (NYSE: AWK), American States Water Company (NYSE: AWR), Xcel Energy Inc. (NYSE: XEL), and DTE Energy Co. (NYSE: DTE).  What we are trying to show you is that the trend of dividend hikes is not without precedent in utilities.

24/7 Wall St. is looking for utility dividend hike candidates after some recent hikes in the sector.  We have evaluated 9 large-cap or mid-cap dividend producing utility stocks for investors where you can expect a dividend hike in the coming months.  These include, in alphabetic order: American Electric Power Co., Inc. (NYSE: AEP), Constellation Energy Group, Inc. (NYSE: CEG), Dominion Resources, Inc. (NYSE: D), Entergy Corporation (NYSE: ETR), FirstEnergy Corp. (NYSE: FE), NextEra Energy, Inc. (NYSE: NEE), Pinnacle West Capital Corporation (NYSE: PNW), PPL Corporation (NYSE: PPL), and Progress Energy Inc. (NYSE: PGN).

Now that the Supreme Court has rejected some carbon-cutting measures, some additional drag has been removed from this sector that might have otherwise been victim to higher ten-year Treasury yields.  We would also like to note that we have tried to consider mergers in our analysis as this sector continues to consolidate.  Our basis is more of a standalone merger basis rather than solely due to mergers  into consideration here because we are looking for the companies which can grow their dividends based solely upon their own metrics.

American Electric Power Co., Inc. (NYSE: AEP) is perhaps our favorite utility and it was named as one of our ten stocks to own for the next decade.  Its shares recently traded at $38.18 and has a current dividend yield of 4.9%.  Its 52-week trading range is $30.34 to $38.99.  Thomson Reuters has estimates of $3.13 EPS for 2011 and $3.22 EPS for 2012.  AEP has had three straight quarters of a $0.46 dividend and this is likely to be grown in the months ahead.  The prior $0.42 quarterly dividend was only in place for two quarters before being raised.  The current pace comes to $1.84 per year.  Our take, look for $0.48 per quarter.  We are not looking for an equal hike this time around as earnings growth is only expected to be almost 3% next year.

Constellation Energy Group, Inc. (NYSE: CEG) is often treated as a controversial stock in the world of utilities.  While we said we are not taking M&A into consideration, it is in a pending deal with Excelon and we are still evaluating this on a standalone basis.  It recently traded at $37.70 and has a current dividend yield of 2.55%.  Its 52-week trading range is $27.24 to $37.87.  Thomson Reuters has estimates of $3.20 EPS for 2011 and $2.46 EPS for 2012.  Its dividend used to be far higher and has been $0.24 per quarter for about ten quarters in a row.  It is hard to know about the “when” but the “if” seems a shoe-in if it somehow is not merged.

Dominion Resources, Inc. (NYSE: D) recently traded at $48.61 and has a current dividend yield of almost 4.1%.  Its 52-week trading range is $36.98 to $49.07.  Thomson Reuters has estimates of $3.14 EPS for 2011 and $3.25 EPS for 2012.  The company has been in the habit of hiking payouts more than once a year if the last hike was a sign.  If no dividend hike is made in the fall, it could be announced late this year.  The current payout is $1.97 per year, leaving well more than $1.00 per share for operations ahead.

For the equity offering, PP&L is selling 80 million shares of common stock at $25.30 per share.  PPL has also priced its offering of 17 million equity units, an increase from the previously announced 15 million units, with a stated amount of $50 per unit, for an aggregate amount of $850 million. The equity units carry a total annual distribution rate of 8.75 percent.

As far as the equity units, those are referred to as follows: “The reference price for the equity units is $25.30 per share, the public offering price in the concurrent common stock offering. The threshold appreciation price for the equity units is $30.99, which represents a premium of about 22.5 percent over the reference price.”

BofA Merrill Lynch and Credit Suisse are the lead book-runners for both the common stock and equity units offerings. Barclays Capital, Morgan Stanley and Wells Fargo Securities are joint book-runners for the common stock offering; and Citi, J.P. Morgan, and UBS are the joint book-runners for the equity units offering. The utility granted the underwriters an overallotment option to buy 12 million shares of common stock.  It also gave the underwriters an overallotment option to purchase up to 2.55 million additional equity units worth $127.5 million if overallotments are needed.

The sum here is nearly $3 billion in the deal all said and done versus a market cap of $12.4 billlion.  Shares closed on Monday at $25.69 and are indicated around $25.60 versus this $25.30 pricing this morning and its 52-week trading range  is $23.75 to $28.80.

JON C. OGG

Avalon Rare Metals, Inc. (AMEX: AVL) Started as Sector Outperform at CIBC.
Boyd Gaming Corp. (NYSE: BYD) Cut to Sell at Goldman Sachs.
Caterpillar Inc. (NYSE: CAT) Raised to Outperform as Bull of the Day at Zacks Investment Research.
ConocoPhillips (NYSE: COP) Raised to Hold at Citigroup.
Demand Media Inc. (NYSE: DMD) Started as Neutral at Goldman Sachs; Started as Buy at UBS.
Janus Capital Group Inc. (NYSE: JNS) Cut to Underperform at BofA-ML.
Molycorp, Inc. (NYSE: MCP) Started as Sector Outperform at CIBC.
Molson Coors Brewing Company (NYSE: TAP) Cut to Hold at Argus.
Nielsen Holdings N.V. (NYSE: NLSN) Started as Buy at BofA-ML; Started as Buy at Deutsche Bank; Started as Overweight at JPMorgan; Started as Outperform at William Blair.
PPL Corporation (NYSE: PPL) Raised to Overweight at Barclays.
Sara Lee Corporation (NYSE: SLE) Cut to Neutral at Zacks Investment Research.
Starbucks Corporation (NASDAQ: SBUX) Raised to Overweight at Morgan Stanley.

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JON C. OGG

The rise in the shares seems to be based on the claim that the deal would be accretive to earnings and because the company will have other cost savings due to its ongoing U.K. operations.

After looking around, the premium paid seems a high price to pay on the surface.  It may just be that there are caveats to the valuation.  Hong Kong’s Cheung Kong Infrastructure was a rival bidder and the terms seem to be at a premium  north of 30% over the asset’s regulatory asset value.  The deal is also higher than other asset premiums, but that might just be part of the better economic environment.  As the economy and the market improves (save the latest pullbacks), the price of poker keeps going up in M&A Land.

Our concern is that PPL may be acquiring this at a time where it seems that long-term rates are more likely to rise rather than fall.  Rising rates generally translate to higher borrowing costs for big capital-intensive utilities which are reliant upon being able to issue debt.  PPL does actually make more sense as an acquirer than say a private equity firm in this case.  After all, it is an operator rather than just a temporary asset owner.

There is a simple question to consider here.  Is outbidding the Chinese smart?  Chinese outfits have been grabbing physical assets whenever they can.  At some point, even the Chinese will allow another bidder to win.

PPL  is going to issue about $2.95 to $3.25 billion in long-term debt to finance the purchase.  Its post-acquisition guidance was also put at $2.50 to $2.75 EPS for 2011, and PPL sees north of $100 million in annual cost savings by 2013.  We may have some concerns over the premium, but value investors seem to be focusing on the notion that shares are still only trading for nine-times to ten-times forward earnings.  It seems that our problem over valuations is probably an issue of considering time horizons.  PPL is probably thinking out for more than a decade.  That is longer than what a private equity outfit would consider.  It is probably longer than yours truly would admittedly consider on the surface.  This is where value investors tend to rise to the occasion.

PPL Corp. was actually raised to “Buy” at S&P Equity Research today, and Thomson Reuters still has  $27.18 for a consensus analyst target.  After a 2.6% gain to $25.56, the 52-week trading range is $23.75 to $29.30.

JON C. OGG

Applied Micro Circuits Corp. (NASDAQ: AMCC) Cut to Sell at S&P Equity Research (late Wednesday call).
Boston Scientific Corp. (NYSE: BSX) Started as Hold at Stifel Nicloaus.
Clearwire Corporation (NASDAQ: CLWR) Started as Buy at Kaufman Bros.
Flextronics International LTD. (NASDAQ: FLEX) Cut to Buy from Strong Buy at S&P Equity Research (late Wednesday call).
Jack in the Box Inc. (NASDAQ: JACK)  Started as Equalweight at Morgan Stanley.
Medtronic, Inc. (NYSE: MDT) Started as Hold at Stifel Nicloaus.
Melco Crown Entertainment Ltd. (NASDAQ: MPEL) Raised to Overweight at Morgan Stanley.
Moody’s Corp. (NYSE: MCO) Started as Market Perform at KBW.
Netflix, Inc. (NASDAQ: NFLX) Started as Hold at ThinkEquity.
PPL Corporation (NYSE: PPL) Cut to Hold at Citigroup.
Rio Tinto plc (NYSE: RTP) Raised to Outperform at RBC.
Zimmer Holdings Inc. (NYSE: ZMH) Started as Buy at Stifel Nicolaus.

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JON C. OGG

Adobe Systems Inc. (NASDAQ: ADBE) is trading down 2.5% at $31.95 on about 150,000 shares after issuing mostly in-line earnings and guidance.

BP plc (NYSE: BP) is up 1.85% at $30.23 after the $29.00 low of the last 52-weeks was not violated yesterday during the sell-off.  Right before 9 AM EST there still have not been 1 million ADRs that have traded hands.

CarMax Inc. (NYSE: KMX) is rallying after the company beat earnings as revenue rose about 23% from the same quarter a year ago.  Shares are up 10% at $22.00 on right about 100,000 shares.

Chimera Investment Corporation (NYSE: CIM) filed to sell 100 million shares to finance the acquisition of residential mortgage-backed securities; shares are down 2% at $3.74 on over 2.5 million shares.

IncrediMail Ltd. (NASDAQ: MAIL) traded up on news that could go either way.  The company renewed its year old pact with Google  to the end of 2010 and it says it is still looking for diversified partnerships.  Shares closed at $5.26 and are up about 5.5% at $5.55, but the trading volume is paltry so far an not even 10,000 shares.

PPL Corporation (NYSE: PPL) is down after selling 90 million shares at $24.00 to help finance its E. On purchase; shares are trading up 0.3% at $24.32 after a $24.24 close and over 2.5 million shares have traded so far.

Red Hat Inc. (NYSE: RHT) earnings did not drive the stock last night: $0.18 on $209 million versus Thomson Reuters $0.18 and $202.89 million. Shares were down 3% last night but this morning shares seem to be just over $31.00 after closing at $30.86.

Rite Aid Corp. (NYSE: RAD) is running higher this morning as the trouble pharmacy turnaround posted a narrower loss than expected.  Shares are up about 13% at $1.14 on over 500,000 shares.

Royal Gold, Inc. (NASDAQ: RGLD) is trading lower after pricing its secondary offering of 5.2 million shares at $48.50 after a $51.28 close yesterday. Shares are down 5.2% at $48.60 on 245,000 shares.

iShares MSCI All Country Asia ex-Japan Index (NASDAQ: AAXJ) traded up 1.4% at $55.18 on 1.4 million shares; may be a carry-over trade.

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JON C. OGG