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3 Dividend Stocks for No-Drama, Fat Returns

October 15, 2009 – by Richard Band

It’s been an exhilarating stock market ride this year, hasn’t it? Barely six months ago, the financial world was in a panic, and stocks were crashing around the globe. Today, champagne flutes are clinking, as investors toast one of the most spectacular market rebounds on record.

How much farther up can this market go? History suggests it won’t be long before the market’s trajectory starts to flatten out. That’s why I’m turning my attention to safe-and-sound utility stocks.

These are the stocks that have gotten the brush-off in recent months. But I’m not concerned. They’re packed with value now, and they’ll come roaring back at the first sign of jitters in the broader market.

Here are three of my top dividend stocks to buy now:

Dividend Stock #1 – FPL Group (FPL)

Florida-based FPL Group (FPL) is the nation’s largest producer of green electricity from wind and solar. FPL sports one of the best growth records in the utility industry — earnings are up 11% annually over the past five years.

FPL’s 3.4% dividend is rock-solid, and I expect a boost within six months.

Dividend Stock #2 – Aqua America (WTR)

Aqua America
(WTR) is America’s strongest and safest water utility. Not only does Aqua America have an essential — indeed, life-sustaining — product; but it also has a geographically diversified customer base (3 million people in 13 states); seasoned, shareholder-friendly management; and, by no means least, an exceptionally strong balance sheet.

I am always on the lookout for franchises with low debt and ample cash flow. Aqua definitely makes the grade.

Wall Street is well aware of Aqua’s gem-like qualities, which include 19 dividend increases in the past 18 years. Aqua America should be a great performer for your portfolio.

Dividend Stock #3 – Public Service Enterprise Group (PEG)

Public Service Enterprise Group
(PEG), the New Jersey-based energy services utility, offers exceptional value at the moment, as evidenced by Peggy’s single-digit P/E ratio and 4.3% dividend yield.

I like the company’s operating performance. Even though this ute derives the lion’s share of its profits from the wholesale generating business (which tends to fluctuate with the economy), Peggy is cruising for record earnings in 2009 — and the analyst consensus for next year projects another, though smaller, gain.

As a rule of thumb, I consider an electric utility to be a takeover candidate when its share price falls below 7.5 times cash flow. PEG is already there. If a suitor showed up, you could pocket a 25%-30% return on your money, virtually overnight.