Income expert picks utility trio

We expect utilities to out-yield U.S. Treasuries in the foreseeable future. This justifies our increasing commitment to the sector.

For income and further price appreciation, we recommend Duke Energy Corp. (DUK) and NextEra Energy (NEE). For reliable income, we are recommending Southern Company (SO). Here's a look at these three utilities.

Our newest recommendation, Duke Energy, now stands as the largest U.S. electric power holding company, with about $114 billion in total assets, including a growing portfolio of U.S. renewable energy assets.

With a market cap of nearly $49 billion, Duke represents the kind of strong, yet adequately diversified utility we admire. Its 10.5 GW of nuclear generation capability sports a best-in-class performance record.

Over the last few years, the company invested about $9 billion in new capacity that has replaced old coal and oil capacity. The company is also well positioned to address current environmental standards, having invested over $7 billion in air emission controls since 1999.

Naturally, we also like Duke for its solid balance sheet, growth prospects and above-average dividend yield of 4.4 percent.

NextEra Energy serves as something of a growth engine, while providing a healthy 3.6 percent yield. Indeed, the company in February raised its dividend to 66 cents per share, in line with a plan announced in 2012 to pay out 55 percent of adjusted earnings by 2014.

The company consists of a regulated utility, Florida Power & Light, one of the largest U.S. electric utilities, serving some 4.6 million customers, and NextEra Energy Resources, which is the largest generator in North America of renewable wind and sun energy.

Rates in its regulated business are set through 2016, and there is further potential for its unregulated arm, NextEra Energy Resources, to outgrow expectations.

Southern Company is the Southeast's premier energy company and also one of the largest U.S. utilities by market cap. The stock yields a healthy, safe 4.3 percent. In 2012 the company raised its dividend for the eleventh time in as many years.

In February 2012, the Nuclear Regulatory Commission approved plans to build two new nuclear reactors at its Vogtle site south of Augusta, Georgia—the first new U.S. plants approved since 1978. Construction for the first unit is expected to start in 2016.

Southern therefore successfully weathered the economic storm and increased earnings at a steady single-digit rate. It has grown its dividend 4 percent annually for the last five years.

The company has strong traditions favorable to stockholders and we think that will continue. Southern offers a solid package of low-risk income, growth and capital preservation.