Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk.

November 10, 2010 - Pinnacle West Capital Corp. (PNW-NYSE) through its subsidiaries, provides retail and wholesale electric services in Arizona. The company is in the generation, transmission, and distribution of electricity through coal, nuclear, gas and oil, and renewable resources.

In addition, the company owns and operates district cooling systems. As of December 31, 2009, it owned or leased approximately 6,280 mega watts of regulated generation capacity; and serviced approximately 1.1 million customers. Pinnacle West Capital Corporation was founded in 1920 and is based in Phoenix, Arizona.

This is the holding company for Arizona Public Service Company which sends electricity to 11 of 15 Arizona counties. Residential power is 47% of its revenues; commercial is 40% and industrial 6%; other users are 7%. In 2009, coal supplied 36% of the power, 26% was nuclear, 17% was gas, and 21% was purchased from others.

This year, the company got out of its SunCor real estate business. It used to make money but after the economic downturn hit Arizona especially hard, the write downs and losses on asset sales were too much. There are still some assets left for sale, about $22 million worth, but they'll most likely be gone by next year. The one good thing: Pinnacle should get $110 million in cash tax benefits in 2012. Without the drag of losses from SunCor, analysts are raising their forecasts for earnings.

Pinnacle is also exiting its district cooling business. Though profitable (it made $3.5 million in 2009), the company is looking to use the proceeds along with the cash tax benefits from SunCor to offset common equity needs. The company made an after tax gain of $25 millin on the sale.

The public service company got a rate hike in 2010, up 7.8%. That raised revenues by $207.5 million. Even with that, the utility is not earning its allowed return on equity which is 11%. After the rate hike, it's earning about 9%. Look for another rate increase application in the middle of 2011 for hikes that would start in mid-2012.

More numbers: Market Cap is $4.47 billion. Trailing P/E is 13.83 while Forward P/E is 13.39. Price to sales ration is 1.34. Price to book is 1.22. Book value is $34.19. Operating margin for the last 12 months was 20.27% while Profit margin was 9.30%. Return on equity was 3.97% and Return on assets was 3.51%. Revenues were $3.36 billion. Total cash is $195.91 million. Cash per share is $1.80. Total debt is $3.70 billion. Debt to equity is 1. Current ratio is 1.29. Beta is .57. The stock is up 23.18% in the last 52 weeks. There are 108.23 million shares outstanding with a Float of 108.23 million. Insiders own .23% while Institutions have 75.30%.

The dividend is what income investors are most interested to know. It's $2.10 a year. That gives a yield of 5%. It takes about 78% of current earnings to pay. The next distribution is on November 30, but you needed to own the stock on October 28 to receive it. That suggests the next ex-dividend date will be January 28 and next payment will be February 28.

Income investors who know how Arizona has been especially hard hit by the recession may wonder if this company will continue to grow earnings. It's possible as it is elgible for rate hikes, plus management is getting out of non-core businesses, especially the loss generating real estate unit. The dividend appears safe for now and with a return of 5% on your investment, this stock seems worthy of more investigation by most investors.

- Company Web site: www.pinnaclewest.com

- Ted Allrich