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Growth & Income

Investors looking for a stock with both growth potential and a strong dividend may want to check out Northeast Utilities (NU - Analyst Report), New England's largest utility company.

The company recently delivered solid third quarter results, prompting management to raise its guidance for the rest of 2010. It also offers a stable dividend that it has been raising steadily since 2001.

Valuations are also quite reasonable, making this Zacks #2 Rank (Buy) an attractive value.

Third Quarter Results

Northeast Utilities recently reported its results for the third quarter of 2010. Earnings per share was $0.57, a 54% increase over the same quarter in 2009. It also beat the Zacks Consensus Estimate by 3 cents.

Operating revenues declined 4.8% year-over-year. A 7% increase in transmission revenues was offset by a 6% decrease in total distribution revenue.

Operating income grew by 22.8%, however, as the company was able to manage its operating and maintenance expenses well.

Outlook

Following a strong third quarter, management raised its guidance for 2010. The company now expects earnings per share between $2.10 and $2.20, up from previous guidance of $1.95 to $2.05.

The majority of analysts revised their estimates higher as a result. The Zacks Consensus Estimate for 2010 is $2.07, slightly below management's guidance. This represents 8% EPS growth over 2009. The 2011 estimate is currently $2.22, corresponding to 7% annual EPS growth.

Dividend

Northeast Utilities offers an attractive and steady 3.3% dividend yield. Since 2000, the company has increased it at a compound annual rate of 10%.

NU: Northeast Utilities

Its dividend payout ratio is a very manageable 53%. This is roughly in-line with other utility companies, such as Cleco Corp (CNL) at 48%, PPL Corp (PPL) at 50%, and Alliant Energy Corp (LNT) at 60%.

Valuation

Shares trade at 15.3x forward earnings, a slight premium to the industry average of 13.7x. Its price to book ratio of 1.5 is also slightly above its peers at 1.3, but still within reason.

Northeast Utilities primarily operates through three wholly-owned subsidiaries: The Connecticut Light and Power Company, Public Service Company of New Hampshire, and Western Massachusetts Electric Company. It has a market cap of $5.6 billion.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

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