A 17-part series on how to achieve maximum returns for the right amount of risk. See all the lessons.

NEW YORK (MONEY Magazine) - Federal Reserve chairman Alan Greenspan raised short-term interest rates last week to 4.25 percent, the highest level in 4-1/2 years.

That marks the 13th hike since June 2004. Nonetheless, over the same period yields on long-term bonds have hardly budged. If anything, they've actually declined slightly.

This unusual pattern creates a dilemma for investors who want safe current income. Yields on top-quality bonds such as Treasuries aren't really high enough to be attractive purely on an income basis.

In addition, since inflation is up 3.5 percent over the past 12 months and the economy continues to grow at an above-average rate, it's entirely likely that long-term yields will creep up over time. And rising rates mean declining bond prices. (I evaluate the case for bonds in the latest issue of MONEY Magazine...see it here).

So where should investors look if they want current income?

One smart choice is strong big-cap stocks that trade at relatively low price/earnings ratios and offer generous current yields. Here's a quick look at three that pay at least 3.5 percent.

Citigroup is one of the most attractive stocks among the big banks. The sector typically performs well after the Federal Reserve finishes a string of rate hikes, which most Fedwatchers think will happen in the first half of 2006.

Moreover, Citigroup has fairly good growth numbers. The financial conglomerate has increased earnings at a 10 percent compound annual rate over the past five years and is expected to continue at that rate over the next five years.

One source of that growth should be the energetic expansion of the bank's branch network, both in the United States and abroad. Growth in earnings per share should also benefit from the steady repurchase of stock – more than $8 billion worth over the past 12 months.

At $49.17 a share, Citigroup (Research) yields 3.6 percent and trades at only 11.3 times estimated earnings for 2006.

DuPont may have limited opportunities in its basic chemical businesses, but the company aims to bolster earnings growth and shareholder value.

To that end, DuPont is focused on maximizing sales in its fast-growing high-tech divisions and raising the profitability of slower growing operations by using capital more judiciously and trimming jobs, largely through attrition.

Over the next three years, DuPont plans to cut costs by $1 billion annually. The company is also buying back $5 billion of stock.

At $42.15 a share, DuPont (Research) currently yields 3.5 percent and trades at 14.5 times estimated 2006 earnings.

Pfizer got a big bump on Monday after a Federal judge in Delaware ruled in the company's favor in a patent case concerning Pfizer's blockbuster cholesterol-lowering drug Lipitor (see more).

Like most global drug giants, Pfizer has two problems that have depressed its stock. Some of the company's key drugs face patent expiration or court suits that would allow generic competition. The Lipitor decision is viewed as a big win for patent holders in all such cases.

Over the longer term, it's the pipeline of new drugs that will power the stock. For companies as big as Pfizer, it's simply difficult to find new billion-dollar drugs fast enough. Some analysts say, however, that Pfizer's pipeline is better than the current depressed share price would indicate.

Earlier this month, Pfizer raised its dividend by 26 percent to 96 cents a year. And the company, which has enormous free cash flow, could afford to increase the dividend further in coming years.

At $24.32 a share, Pfizer (Research) yields 4 percent and trades at 12 times estimated 2006 earnings.

Sivy on Stocks resources:

Sivy 70: America's best stocks

Guide to Growth

_________________

Click here to receive Sivy on Stocks via e-mail every Tuesday.