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NEW YORK (TheStreet) -- Investors seeking a steady yield, yet fear the bursting of the bond bubble, may want to plug into utility shares.


Utilities Select Sector SPDR

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, which represents the 34 utilities in the

S&P 500

, has risen 2.5% this year, trailing the broader index's 9.3% gain. Still, most of the S&P 500's increase has come in the past two months as cheap money from the

Federal Reserve

has spurred investors to snap up riskier assets, leaving boring utilities stocks behind.

On the other side of the ledger, bond buyers who would potentially be attracted to utilities yields -- the Utilities Select Sector SPDR yields 4% compared with a 2.6% payout for the 10-year


-- have been hesitant to leave the supposed safety of government securities for equities even after an unprecedented run-up in bond prices.

"Utilities tend to pay good dividends, while bonds will continue to pay low yields in 2011," says Harvey Neiman, manager of the

Neiman Large Cap Value Fund

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. "Additionally, energy costs will remain high for the foreseeable future, which will translate into higher revenue as most public utilities operate as regulated monopolies. Their customer base is a captive audience."

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Says Peter Zuger, who helps manage the

Touchstone Mid Cap Value Fund

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: "In these turbulent times characterized by very low interest rates, utilities offer a portfolio the anchor of downside protection coupled with dividend yields that are very competitive with fixed income securities."


searched for the market's top utilities with the help of Neiman and Zuger.

AGL Resources

( AGL)

AGL Resources owns natural gas distributors serving the Atlanta area, as well as parts of Virginia, New Jersey, Tennessee and Florida. In total, the company has 2.3 million customers in six states. AGL also owns Houston-based Sequent Energy Management, an asset manager serving natural gas wholesale customers throughout North America, and a majority stake in the SouthStar partnership, which markets natural gas to consumers in Georgia under the Georgia Natural Gas brand. The company owns and operates natural gas storage facilities in Louisiana and Texas.

"This stock trades at a discount to its gas utility peers and offers a moderately growing 4.5% dividend yield," Zuger says. He adds that there's a Georgia rate order that grants the company a $26.7 million increase applicable to its distribution company effective this month.



This South Carolina-based electric utility provides investors with an attractive 4.7% dividend yield. SCANA serves approximately 660,000 electric customers in South Carolina and more than 1.2 million natural gas customers in South Carolina, North Carolina and Georgia. The company is also a partner in a new nuclear plant that will provide the company with significant growth in its rate base.

Outside of supplying energy to the southeastern U.S., the company also owns and operates a 500-mile fiber optic telecommunications network and data center facilities, provides Ethernet services, and engages in tower-site construction management and rental services.

"The expanding rate base supports prospective earnings and dividend growth," Zuger says. "South Carolina also provides its utilities a supportive regulatory environment."

American Electric Power

(AEP) - Get American Electric Power Company Inc. Report

AEP is one of the largest utility companies in the U.S. serving Ohio, Indiana, Oklahoma and part of Texas, and delivering electricity to more than 5 million customers in 11 states. Traditionally generating most of its power from coal and oil, AEP has now branched into alternative fuels such as hydroelectric, solar, wind and biofuels.

Most recently, AEP announced a pair of joint ventures totaling more than $2 billion aimed at paving the way for putting renewable energy on the Midwestern power grid. The projects are considered a key part of the infrastructure needed to support cleaner forms of energy, such as wind and solar.

"It has strong financial statements, and delivers 4.9% in annualized dividend yield," says Neiman. "The stock price has increased by more than 20% in the last 6 months so there is some momentum there as well."

Sempra Energy

(SRE) - Get DBA Sempra Report

Sempra Energy, which pays a 2.9% annualized dividend, is the parent company of San Diego Gas & Electric and Southern California Gas Co., serving over 1.4 million customers in San Diego and other Southern California communities. Sempra Pipeline & Storage, a subsidiary, is a major player in the delivery of liquid natural gas throughout the U.S. A current project is to build a gas pipeline from the Rocky Mountains to the East Coast.

In its most recent quarter, Sempra reported a sharp drop in third-quarter net income as it booked a hefty charge on the planned sale of its RBS Sempra Commodities joint venture. It also reaffirmed guidance for 2010 below analysts' expectations, but Neiman still says it's headed in the right direction.

"For a public utility, Sempra carries relatively low debt and it is also committed to the development of alternative and renewable sources of energy which is important in the current environment," he says.

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