Most of us know about conservative utility stocks. They were supposed to pay big dividends and be safer to own than other equities. But that was before privatization ended much of the government regulation of utilities and increased their competitive (and often fiscally foolish) practices.

Utilities investors in the last decade or so have likely been wishing they had put their hard-earned funds into cash or bonds instead. O'Shaughnessy would have you take a lot of the new risk out of utilities investing by limiting the pool of such stocks, from which to select, to those with a "Value Line" safety rank of 1 (the very highest). However, there's still a problem. If one looks at the debt to equity ratios of even these supposedly safe stocks, they tend to be quite high. The dividend payout ratios (an indication of the sustainability of the company's dividend) also is generally way too lofty. Especially after we've seen a slew of "nice" companies like Enron or Worldcom implode in the last few years, even the stocks that are 1-rated for safety don't look so reassuring when their debts are too high and their dividends too risky.

What about his Core Value approach? Here, I think, he may be onto a pretty good thing. It looks like a fairly safe investment strategy that is also likely over time to generate a combination of dividends plus capital gains comfortably rivaling the yield of bonds.

O'Shaughnessy wrote that, for the Core Value method, one should first look only at the "Value Line" stocks with the very best (A++) financial strength ratings. Usually only about 40 out of the 1700 stocks in the "Value Line Investment Survey" qualify for this rating, stocks like Coca-Cola, General Electric, and Home Depot.

Next, determine an average yield among these A++ stocks (currently 2.09%) and consider only those with yields above that average.

Finally, each year buy the 10 stocks, from the remaining approximately 20 (usually plus or minus 2-3), with the highest projected "Value Line" 3-5 year dividend growth.

So, I have selected from the Value Line A++ assets only those with: superior dividend growth rate; debt to equity .33 or below; payout ratio .5 or below; and a 3-5 year projected total return at least 25% higher than the average.

As best I can determine, only three stocks currently meet these criteria:

Since this latter, more selective approach provides fewer stocks making the cut at any one time, for adequate diversification I would suggest running the screens quarterly and adding, each three months, securities that newly meet the standards. But as these are generally quite good quality assets with fine long-term prospects, in this strategy, all such assets would, in contrast to the O'Shaughnessy Core Value plan, not be sold annually but just after being held at least 3-5 years, if they then no longer meet the selection criteria.

Regarding the above suggested assets, few if any mechanical approaches to equity selection can be the last word. It is important, I think, for investors to do their own due diligence research before choosing to buy any stock or mutual fund.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)