(FORTUNE Magazine) – As fat bond yields become rarities, income-hungry investors are setting their sights on one of the last great bison herds around: electric utilities. Their stocks have been laggards in the recent market surge, and shares of power companies with nuclear construction programs dipped temporarily after the Chernobyl accident in the Soviet Union. With the average dividend yield on Standard & Poor's index of 20 electric utilities hovering at 7.9%, or more than twice the average for stocks on the S&P 500-stock index, the shares look irresistible on the face of it. But investors counting on future increases in those juicy dividends should buy selectively. Security analysts caution that a new crop of penny-pinching regulators have made hefty dividend growth less of a sure thing than in the recent past. With inflation and interest rates down sharply, utility commissioners are no longer prone to grant the generous rate hikes to which many utilities have grown accustomed. Says Ernest Liu, a utility analyst at Goldman Sachs: ''It's inevitable that there is going to be some compression of allowed rates of return and a reduction in the dollar amount of rate increases.'' Future dividend growth, analysts say, will depend far less on rate hikes and more on a utility's ability to win new business in the growing competition among neighboring power companies to hook up industrial customers. Utilities that stand to gain most, says Liu, are those whose plants produce the lowest- cost electricity. Duke Power, which serves areas of North and South Carolina, is among the most efficient utilities in the country by Liu's reckoning. Minnesota's Northern States Power, a favorite of Betsy Hinrichs, a utility analyst at Duff & Phelps, also purveys bargain kilowatts. Another avenue to higher earnings is diversification into non-utility businesses. Few utilities have done so more aggressively than Potomac Electric Power, based in Washington, D.C. In 1985 the utility garnered 9% of its earnings from non-utility businesses, principally through its Potomac Capital Investment subsidiary. Barry Abramson, a utility analyst at Prudential-Bache, thinks that Potomac Electric's healthy cash flow and expansion into nonregulated businesses will keep the dividend rising by a healthy 10% a year through the Eighties. & Consolidated Edison, based in New York City, is only getting started at diversification. Moreover, the prospect for landing new customers seems dim since Con Ed produces some of the priciest power in the U.S. Yet analysts figure that dividends will keep climbing anyway, for the utility is flush with cash. Though far smaller in size, Wisconsin Public Service is a dairyland cash cow with ample funds to finance its foreseeable construction needs. Liu of Goldman Sachs figures that both utilities are good for 8% annual dividend hikes over the next several years. COMPANY REVENUES NET STOCK PRICE RECENT latest four INCOME RANGE PRICE quarters in millions last 12 months P/E multiple 1 in millions Consolidated Edison $5,470.6 $547.7 $32.00-$45.25 $43.00 10.3 Duke Power $2,980.8 $436.3 $30.00-$43.00 $41.13 11.1 Northern States Power $1,783.2 $205.4 $44.88-$65.50 $62.88 10.2 Potomac Electric Power $1,350.3 $189.4 $27.50-$42.75 $41.00 11.0 Wisconsin Public Service$626.5 $57.2 $34.00-$49.50 $47.50 10.7 1Based on earnings for the last four quarters, exclusive of nonrecurring items.