Scared of the whipsawing stock market, and dissatisfied with the paltry yields of the bond market, many investors are on the prowl for plain-vanilla securities they can profit from by day and which let them sleep well at night.

On the surface, the role of that portfolio/sleep aide would be ideal for a utility company from Middle America that has a solid balance sheet and just raised its dividend.

That's why investors are casting loving glances at Wisconsin Energy Corp., a mostly dull stock that fits the safe, comfortable mode. Alas, the pursuit of those characteristics can often be a bit like falling for fool's gold, where the stock looks better than it is likely to play out.

There is a logical buy-and-hold case to be made with Wisconsin Energy, and investors who take that approach might come away years hence feeling pretty good about the results. Moreover, there's no reason even the most jaded skeptic would assume the stock will send an investor to the poorhouse.

It's more that Wisconsin Energy currently is priced and positioned to be a disappointment, and that investors who scratch beneath the facade of "increased dividend/solid financials" will find that other utilities will not only deliver what they want, but do it much better.

Wisconsin Energy is a holding company that's in both the electricity and natural gas space, with its electric and gas utility businesses the largest respective energy providers in its home/ namesake state. The electricity side of the business accounts for around two-thirds of the company's revenues. Trailing 12-month sales for Wisconsin Energy amounted to nearly $4.3 billion as of June 30.

With a sound balance sheet - Morningstar Inc. gives the stock an "A" grade for financial health - and with Wisconsin being an area of the country that needs to build up its power plant, there are some exciting construction prospects on the horizon that could lead to long-term stability. Analysts expect a big jump in earnings going forward, from $3.08 this year to $3.20 next - with some analysts going so far as to expect growth all the way past $3.75 - a sharp move for a mostly stodgy utility.

That said, investors need that growth, because they are getting a bit less dividend than they might expect.

Wisconsin Energy recently raised its quarterly dividend by 20 percent - its current yield is just above 3 percent, with the stock in the low to mid-40s range, just off from its 52-week high. Management also indicated that it would raise its target payout ratio to between 40 percent and 45 percent of earnings. But the truth is that its dividend policy is far from the norm.

Most utilities pay out about half of their earnings in dividends, so their payout ratio is closer to 50 percent. Moreover, when they need cash, most utilities simply sell more shares. Wisconsin Energy has needed to raise capital for its "Power the Future" program that is growing its capacity, but it has done that by keeping the dividend down.

When that happens with a utility, the investor is basically trading off dividend payout for future earnings growth. But, as Josh Peters, editor of the Morningstar Dividend Investor newsletter, put it: "The extra earnings growth you get - in exchange for the extra dividends you do NOT get - is not a good trade."

Send e-mail to jaffe@marketwatch.com

Originally published by By Chuck Jaffe.

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