Today's pick is from the utilities sector.  I looked at approximately 120 stocks to make this pick.  As with the drug sector, utilities obey their own set of rules.  Utility stocks pay dividends more often than almost any other type of stock.  I hadn't researched this sector thoroughly before today and I was surprised by the number of dividends.

When you purchase a stock for its dividend, the rules are completely different from when you purchase with intent to sell.  Key things to look for in this situation are as follows:

First, the market capitalization should be fairly high.  $10 billion is about as low as you want to go.

Second, the range between the 52-week high and low should be small compared with the price of the stock.  Volatility in a dividend stock is bad.

Third, the annual cash flow should be significantly higher than the annual dividend.  A factor of 2 is a good rule of thumb.  This information can be obtained from past reports, unless you happen to be doing your research around November/December.

After the first three criteria are met, the percentage gain from the dividend is taken into account.  Large return rates are often considered suspicious by expert investors, and they certainly require careful scrutiny.  There are companies out there with sustainable 20% or higher dividends, but not all sectors support such a thing.  For example, the highest dividend I saw in the utilities sector was 8.80% per year, and I rejected that one in favor of Dominion Resources (D).

Dominion meets the three key criteria.  Its market cap is $26.30B, its cash flow of $7.15 per share since January is more than twice the annual dividend of $3.16 per share, and the price difference of $7.15 between the low and the high is less than 1/6 of the current share price, which is $45.71.  Additionally, of all the stocks in utilities that met the first three criteria, D has the highest annual percentage return.

This isn't a stock for making a lot of money in a few months, but it might be one to buy and hold on to.