In my view, investors, who like safe and reliable income from dividends, and are happy with the long-term trend for interest rates, need only to determine the S&P ratings on all the stock components of the Dow Jones Utility Average, S&P SPDRS (Amex: XLU) or the HOLDRS (Amex: UTH). Then they have to find the highest-rated companies in these groups that pay the highest dividend yields.

Investors who find it a bit too risky investing in individual stocks may want to look directly at the XLU or UTH, which are popular ETFs.

But, nothing is straight forward in capital markets. As with all securities, there is an element of cyclicality in the utilities sector. Interest rates are a big factor here.

As utility sector companies hold large bond positions, and their quarterly balance sheets are marked to market, their assets take quite a hit during periods of rising interest rates.

And, as 2005 is believed to be a period where current bond yields will rise, and the prices of the bonds-burdened utility portfolios sink, I feel the utility sector should be under-weighted in investors' portfolios.

In my view, utility stocks are well over-priced today. The XLU for example is yielding only 3.14 percent, and carries a very high PE of 16. I suspect that six months from now, these ETFs and the component issues will be much lower in price.

For the XLU and UTH, note the MACD, %K STO and RSI bearish cross-overs on the by-weekly data charts, as well as the ominous DMI. Although technical indicators are just that -- indicators -- these charts look like wealth destruction in the making.

Even if your goal is income from dividends (rather than primarily capital gain), investors should try to add to positions whenever the stock price cycle is down, which results in a higher than long-term average dividend yield.

But, regardless, when it comes to utility stocks, either regulated or unregulated, I recommend that you not ever listen to the sell-side. I say this because in 1999, seldom during the rush to buy up the stocks of utility companies did I hear the one practical piece of advice from Wall Street that could have saved investors from the collapse of the utility stock bubble, which is: always look at the credit rating before buying any security for fixed-income.

What you have to do with the individual utility sector stocks is sell them on S&P or Moody's rating downgrades. Don't even bother to read the report before you sell.

Just understand that credit downgrades are often unexpected, and the broker-dealer and/or their clients are sitting on a ton of utilities paper, which is harder to move than say GOOG or EBAY, so you are not likely to hear an objective opinion.

BCara@BillCara.com