Margin of Safety: 10 Utility, Dividend Stocks to Consider

NEW YORK (TheStreet) -- With the stock market facing a possible correction, investors may want to consider utility stocks that offer sizable dividends and a margin of safety.

The Dow Utility Average set an all-time intraday high at 576.98 on June 30, and through Tuesday's close, the average was up 14% year to date, outpacing the broader market. But even with their run-up this year, utilities are less risky than stocks in general as I continue to believe that the upside for the stock market is limited and the downside risk is significantly more than the 10% correction many strategists are predicting.

Within the Dow Utility Averaage, Duke Energy (DUK) , Consolidated Edison (ED) , FirstEnergy (FE) , Public Service Enterprise (PEG) and Southern Co.  (SO)  all have dividend yields between 4% and 4.7%. The other five have dividend yields between 3.4% and 3.8%.

Exelon Corp.  (EXC) and PG&E Corp.  (PCG) are outperforming the utility average with year-to-date gains of 21% and 17%, respectively.

Let's take a look at the weekly chart for utilities and profile the 10 components with the highest dividend yields.

Courtesy of MetaStock Xenith

The weekly chart for the Dow Utility Average is positive with its five-week modified moving average at 556.68 and 200-week simple moving average 473.19.

Looking back to 2007, Dow Utilities traded as high as 555.71 in January 2007, and broke below its 200-week SMA (green line) at 444.07 in September 2008. Utilities set their March 2009 intraday low at 288.66, down 48% for the "Crash of 2008." 

Now here are the 10 utility stocks with the highest dividend yields followed by two "crunching the numbers" tables.

American Electric Power (AEP) ($52.99) is up 13% year to date and closed Tuesday at its five-week modified moving average of $52.99 and two cents above its 50-day simple moving average. The stock set an all-time intraday high at $55.16 on June 30, and traded as low as $49.06 on Aug. 6. Semiannual and annual value levels are $48.77 and $45.30, respectively, with quarterly and semiannual risky levels at $55.56 and $56.03, respectively.

CenterPoint Energy (CNP) ($24.69) is up 6.5% year to date and is a penny below its five-week modified moving average of $24.70 and three cents below its 50-day SMA. The stock set a multiyear intraday high at $25.75 on June 30, and traded as low as $23.47 on Aug. 6. Annual value levels are $22.76 and $20.88 with a semiannual pivot at $25.13 and quarterly and semiannual risky levels at $25.49 and $28.76, respectively.

Dominion Resources (D) ($69.87) is up 8% year to date and is above all five key moving averages. The stock set an all-time intraday high at $73.75 on April 30, and traded as low as $64.71 on Aug. 6. Semiannual and annual value levels are $67.02 and $59.00, respectively, with a quarterly pivot at $70.20 and semiannual and monthly risky levels at $74.30 and $74.97, respectively.

Duke Energy ($73.79) is up 6.9% year to date and is above all five key moving averages. The stock and set its 2014 intraday high at $75.13 on April 29, and traded as low as $68.81 on June 12. Annual and quarterly value levels are $70.21 and $69.32, respectively, with a semiannual pivot at $73.87 and monthly and semiannual risky levels at $75.83 and $82.53, respectively.

Con Edison ($56.93) is up 3% year to date and is just below its five-week MMA of $57.10. The stock and set its 2014 intraday high at $58.57 on April 29, and traded as low as $53.61 on May 20. Annual and quarterly value levels are $55.65 and $52.48, respectively, with an annual pivot at $57.77 and semiannual risky levels at $64.74 and $69.77.

Exelon Corp. ($33.12) is up 21% year to date and is below its 200-week SMA of $36.08. The stock set its 2014 high at $37.73 on June 6, and traded as low as $30.66 on Aug. 4. Quarterly and semiannual value levels are $29.47 and $26.91, respectively, with semiannual and annual risky levels at $36.23 and $38.55, respectively.

FirstEnergy ($34.16) is up 3.6% year to date and is below its 200-week SMA of $40.07. The stock set its 2014 intraday high at $35.59 on June 19 then traded as low as $29.98 on Aug. 5. Monthly and quarterly value levels are $33.66 and $27.66, respectively, with a semiannual pivot at $35.20 and annual and semiannual risky levels at $42.33 and $44.63, respectively.

PG&E Corp. ($47.00) is up 17% year to date and is above all five moving averages. The stock set its 2014 intraday high at $48.64 on June 20, and traded as low as $42.92 on Aug. 6. Semiannual and quarterly value levels are $43.13 and $42.57, respectively, with an annual pivot at $47.32 and monthly risky level at $49.86.

Public Services Enterprise ($36.62) is up 14% year to date and is below its five-wee\k MMA of $36.87. The stock set its 2014 intraday high at $41.38 on April 30, and traded as low as $34.05 on Aug. 6. Annual and semiannual value levels are $34.67 and $32.93, respectively, with a semiannual pivot at $36.54 and annual and monthly risky levels at $38.24 and $42.73, respectively.

Southern Co. ($43.97) is up of 7% year to date and is below its five-week MMA of $44.11. The stock set its 2014 intraday high at $46.81 on April 29, and traded as low as $41.87 on Aug. 6. Annual and quarterly value levels are $42.26 and $42.00, respectively, with an annual pivot at $44.40 and monthly and semiannual risky levels at $46.72 and $49.67, respectively.

Crunching the Numbers with Richard Suttmeier: Moving Averages & Stochastics

This table provides the technical status for the stocks profiled in today's report.

The 12-month trailing price-to-earnings ratio

The Dividend Yield

There are five columns with moving average titles: Five-Week Modified Moving Average, 21-Day Simple Moving Average, 50-Day Simple Moving Average, 200-Day Simple Moving Average and the 200-Week Simple Moving Average.

The column labeled 12x3x3 Weekly Slow Stochastics shows the pattern on each weekly chart with readings from Oversold, Rising, Overbought, Declining or Flat.

Interpretations: Stocks below a moving average are listed in red.

Five-Week Modified Moving Average (MMA) is one of two indicators that define whether or not a weekly chart profile is positive, neutral or negative. The other is the status of the 12x3x3 weekly slow stochastic.

A stock with a positive technical rating is above its five-week MMA with rising or overbought stochastics.

A stock with a negative technical rating is below its five-week MMA with declining or oversold stochastics.

A stock with a neutral technical rating has a profile that is not positive or negative.

The 200-Week Simple Moving Average (SMA) is considered a long-term technical support or resistance and as a "reversion to the mean" over a rolling three- to five-year horizon.

The 21-Day Simple Moving Average is a short-term technical support or resistance used by many hedge fund traders to adjust positions. A stock above its 21-day SMA will likely move higher over a rolling three to five day horizon and vice versa.

The 50-Day Simple Moving Average is also a technical support or resistance used by many strategists and commentators in financial TV.

The 200-Day Simple Moving Average is another technical support or resistance and I consider this level as a shorter-term "reversion to the mean" over a rolling six- to 12-month horizon.

Crunching the Numbers with Richard Suttmeier: Earnings & Where to Buy & Where to Sell

Value Levels, Pivots and Risky Levels are calculated based upon the last nine weekly closes (W), nine monthly closes (M), nine quarterly closes (Q), nine semiannual closes (S) and nine annual closes (A). I have one column for pivots, which is a magnet for the period shown. The columns to the left of the pivots are first and second value levels. The columns to the right of the pivots are first and second risky levels.

Investors who wish to buy a stock should use a good-until-canceled GTC limit order to buy weakness to a value level. Investors who want to sell a stock should use a GTC limit order to sell strength to a risky level.

At the time of publication, the author held no positions in any of the stocks mentioned.

Follow @Suttmeier

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff

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