(FORTUNE Magazine) – As weakening sales and earnings choke the cash flows of many companies investors count on for dividends, stocks that provide steady income may be scarce in the 1990s. But Charles Clough, Merrill Lynch's chief investment strategist, thinks he has found an important exception: electric utilities. The stocks have historically been a good defensive investment. In the last four bear markets, while the S&P 500 fell an average of 22%, electric utilities dipped only 3%. One word of caution: Don't select utilities solely for lofty dividends, which may be unsustainable. Lately Wall Street has warmed to Pacific Gas & Electric. Like other power companies that rely on nuclear plants, it took a pounding in the Eighties. But the burdens imposed on coal- and oil-burning utilities by the overhauled Clean Air Act and Saddam Hussein have given its stock a new glow. PG&E paid huge sums to earthquake-proof its Diablo Canyon reactor, now considered one of America's safest, most efficient nukes. To help make up for its $5.8 billion construction bill, California regulators gave PG&E the right to collect uncapped returns on part of the power it generates. Kathleen Lally, utilities analyst at County NatWest Securities, expects dividend increases of more than 6% a year on the stock, which currently yields 6.3%. Commonwealth Edison also gains luster from the Clean Air Act, according to Edward Tirello of Smith Barney Harris Upham. Nuclear plants supply more than three-fourths of its energy. The stock suffered last May when the Illinois Supreme Court threw out a 1987 rate increase, pushing rates back to 1985 levels. But analysts expect them to rise next year. Tirello predicts that earnings will shoot up in 1991 after dipping this year, and that the company will fatten its dividend slightly. Wisconsin Energy is a profit powerhouse that has delivered an average annual total return of 25% in the past decade. That ranks it among the top ten electric companies, according to John Slatter of Prescott Ball & Turben. Although its yield of 5.8% is relatively low, Wisconsin Energy has increased the dividend for 30 consecutive years. The Clean Air Act poses no problem; the company already complies with even stricter state emissions standards. A solid balance sheet and strong cash flow help make LG&E Energy of Louisville, Kentucky, a favorite with Prudential-Bache's Barry Abramson. Unlike most utilities in its region, LG&E was ready for the revamped Clean Air Act, having retrofitted its coal-burning plants with scrubbers to pass the new emissions requirements. While neighbors may be forced to switch to costly low- sulfur coal, LG&E can keep burning the high-sulfur variety that abounds in Kentucky. AFTER SPENDING years fighting off accusations of tax fraud and illegal political contributions, Southern Co. has mended its ways, according to Morgan Stanley's Sanford Cohen. He thinks Wall Street has been slow to acknowledge the company's potential. Regulators in Georgia and Florida allow Southern to pass profits on the sale of some excess power to shareholders rather than using the money to reduce rates. Analysts expect the dividend, which hasn't increased for four years, to go up in 1991. The stock already yields 8.1%. Entergy, formerly Middle South Utilities, has returned from near bankruptcy to become what Alan Berro, manager of the Fidelity Utilities Income Fund, calls ''the best recovery story I know.'' The company recently increased its dividend 20% but still pays out only half of its earnings, vs. 70% for most electric companies. Berro expects the dividend to keep growing at double-digit annual rates. By some analysts' estimates, that could help push up the stock, now at $22 a share, to $29 by mid-1992 -- a sizable increase for a utility, and enough to lighten any investor's heart.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: JUICE UP YOUR PORTFOLIO Electric utilities pay solid dividends and offer a safe haven in recessionary times. The Diablo Canyon nuclear plant is fueling PG&E's growth.