Your clients are seeking income more than ever these days. But in the current investing environment, safety takes precedence over growth possibilities in a prudent investment program.

When researching income opportunities in the stock market, the starting point should be the largest, steadiest dividend payers in industries with above-average dividend yields — that is, above the Canadian market’s current 2.7% yield.

This brings you to financial, utility, telecom and pipeline stocks. The financial sector retains higher than normal risk; utility, telecommunications and pipeline companies yield between 4.4% and 5.1% on average, so they become the primary targets for those clients seeking dividend income.

Dividend growth has been the focus of recent media attention. Companies with beautiful dividend growth track records will have difficulty keeping up the pace — if they can indeed grow at all in these rough economic conditions. Stability and security of payment should be your focus.

Balance-sheet strength is another important point to consider. Excessive debt is the world’s problem, and your clients will want to avoid investing in companies whose dependence on debt is increasing.

Finally, measure and compare the growth of money coming in and being generated from operations. Sagging revenue points to trouble. And wilting cash flow threatens dividend payment rates.

The accompanying tables show comparisons between how companies in three sectors fared in the first half of this year vs the same period a year prior. Historical averages and growth rates provide a yardstick for long-term comparisons.

Consider these points:

> Dividend Coverage Is The Basic Thing To Compare. A company whose cash flow covers dividend payments several times over shows less chance of a future dividend cut — or, worse, a dividend omission.

Among utilities, Atco Ltd. is the clear standout, with cash flow averaging more than 16 times dividend payments over the past five years. Atco has maintained this coverage rate so far in 2010.

Canadian Utilities Ltd. , which is controlled by Atco, reveals similar steady coverage but at a lower rate.

The trend for Emera Inc. is unfavourable in comparison, with dropping dividend coverage.

Among telecom companies, dividend coverage is mixed. Comparisons for Rogers Communications Inc. are not clear-cut because the company’s dividend payments have risen dramatically in the past five years, as its earnings have doubled in the same period.

Manitoba Telecom Services Inc. ’s dividend coverage jumped in the first half this year, on a relatively small change in cash flow, but its long-term trend is unfavourable.

Among the two major pipeline companies, Enbridge Inc. is making better progress in dividend coverage than Transcanada Corp.

> Balance-Sheet Strength Is A Prime Need For An Investment Prospect Today. This is not a secret. Com-panies whose ratio of long-term debt to shareholders’ equity is tending to drop display favourable trends in this measure.

By this meas-ure, almost all companies examined here are depending less on long-term debt in their total capital — or little more than they have in the recent past.

For example, Fortis Inc. ’s long-term debt dropped to 1.4 times share-holders’ equity in the first half of this year, vs 1.5 times in the same period last year and an average of 1.6 times in the preceding five years.

> In A Time Of Economic Contraction, A Steady Or Rising Top Line Is Exceptional. This is why companies with year-over-year revenue growth this year have appeal — even though that growth may be below the average recent growth rate.

Mind you, some unfavourable-looking comparisons this year may not be as damaging as they look. The drop in Fortis’s revenue in the first half may be less significant in the light of its high recent average growth rate.

MTS has not improved, though. Its revenue has dropped in recent years under competitive pressure.

> Cash Flow, The Heart Of Corporate Health. Com-panies generating increasing cash flow in current conditions demonstrate real financial strength. BCE Inc. is a prime example. But consider this: seasonal tendencies may account for a significant drop in cash-flow generation in the first half for some companies. The third quarter could change the trend. IE