Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk.

Hawaiian Electric (HE-NYSE) through its subsidiaries, primarily engages in electric utility and banking businesses in the state of Hawaii. It has about 442,000 customers. The electric utility business is the production, purchase, transmission, distribution, and sale of electricity from renewable energy sources, such as wind, solar, photovoltaic, geothermal, wave, hydroelectric, sugarcane waste, municipal waste, and other biofuels, as well as from fuel oil. It distributes and sells electricity on the islands of Oahu, Hawaii, Maui, Lanai, and Molokai, as well as serves suburban communities, resorts, the U.S. armed forces installations, and agricultural operations. Revenues in 2009 were 34% residential, 34% commercial, 31% large light and power, 1% other.

The Banking business is American Savings Bank, F.S.B., which accepts savings accounts, checking accounts, money market accounts, and certificate of deposits; and provides real estate, residential mortgage, construction and development, multifamily residential and commercial real estate, consumer, and commercial loans. The company was founded in 1891 and is based in Honolulu, Hawaii.

For the last several years, HE has been hurt by low returns on equity. It petitioned the Hawaii Public Utilites Commission for rate relief and has reached an agreement with the regulator. The PUC now needs to give final approval to the plan. Because of the slower economy and a new emphasis on conservation of energy, kilowatt hours are down while operating and maintenance costs are higher. The new agreement will provide for annual rate adjustments to help recover the higher costs regardless of electric revenues and volume. Management believes final approval will come by the end of June.

If the approval is granted, earnings will rebound significantly. For the last 3 years, they've decreased, going from $1.11 in 2007 to $1.07 to 91 cents last year. This year, with rate approvals, 5 analysts have a consensus estimate of $1.50, then $1.85 next year. Second quarter earnings were just released and met analysts estimates of 29 cents, well above the 22 cents reported last year in the second period. For the third quarter, look for 49 cents, an improvement on the 37 cents of last year's third.

Part of the better numbers will also come from the bank. Last year's earnings were damaged by losses in the sale of mortgage related securities. The bank is going through a restructuring program which should be finished this year but won't receive the full benefit of lower non-interest expense until next year.

All of that will combine to give greater comfort to Income investors. Last year, the dividend ($1.24...where it's been for the last 4 years) took 116% of earnings to pay. This year, it will be 82%, then 74% next year. There is no expectation of raising the dividend. But at a current yield of 5.4%, it's still very good compared to most other utilities and is above the mean for all utilities.

Here's what Constance Lau, president and CEO of HE, said at the most recent earnings conference call: "We are making solid progress in improving the performance of our operating companies. We continue to focus on improving our utilities' returns which remain significantly below their allowed rates of return, while at the bank we look forward to completing the final major phase of the performance improvement project next quarter. At the utility, first quarter earnings reflected much needed rate relief to recover investments in our first biofuel generating plant, as well as higher operation and maintenance expenses. Results also reflected higher electric sales due to more normal weather relative to last year's unusually cool temperatures."

"At the bank, we are encouraged by another quarter of lower noninterest expenses and moderating credit costs. While we have been reporting favorable adjusted results for several quarters, we are now beginning to see the benefits of the performance improvement project in our GAAP results."

More numbers: Market Cap is $2.13 billion. Trailing P/E is 25 while the Forward P/E is 12.5. Price to sales ratio is .91. Price to book is 1.45. Book value is $15.58. Operating margin for the last 12 months was 8.13% while Profit margin was 3.59%. Return on equity was 5.86% and Return on assets was 1.29%. Total revenues were $2.31 billion. Total cash is $503.92 million for $5.45 a share. Current ratio is 1.03. Beta is .71. 52- week range was $15.83 to $24.04. There are 92.5 million shares outstanding with a Float of 91.95 million. Institutions own 38.30% of the stock. Insiders have .39%.

Income investors should like this story. With rate relief for its subsidiaries (Hawaiian Electric, Maui Electric, and Hawaii Electric Light) and a restructuring at the bank, HE looks to have a solid earnings stream, capable of continuing the dividend. But if the PUC doesn't grant the new agreement, the dividend is in jeopardy.

- Company Web site: www.hei.com