(MONEY Magazine) – Many utilities pay out nearly all of their profits in the form of dividends, sometimes neglecting to hang on to enough cash to finance growth. But despite its high yield, New England Electric (ticker symbol: nes; recently traded on the New York Stock Exchange at $36; yield: 6.3%), a $2.3 billion company based in Westborough, Mass., has a so-called payout ratio of only 70% -- compared with about 80% for the average electric company. That gives the stock "a potential to continue above-average dividend growth," says Steve Fleishman, an electric utilities analyst at Kidder Peabody in New York City. Fleishman expects New England Electric to raise its dividend by 3.6% in late May and by roughly the same amount annually for the next five years. Moreover, New England Electric recently reached a settlement with the state of Massachusetts that allows it to lower the rates for some industrial customers. Those lower rates should boost the company's market share and ultimately its profits. Like all high-yielding utilities, New England Electric's share price may fall if interest rates rise. Even so, Roger Conrad, editor of Utility Forecaster in Alexandria, Va., expects the stock to return 10% to 15% or more a year for the next five years. (For four income stocks with lower yields but more potential for capital gains, see page 65.) -- V. O'C.