Investors have a front-row seat to the hottest show in town: Honey, I Shrunk the Yields. With bond yields shriveling to record lows, the stock market is becoming the last refuge of the income-hungry. True, the Standard & Poor's 500-stock index is yielding 2.8%, the smallest since the stock market peaked in 1987. But high, secure dividends are there for the taking--though not necessarily where you'd expect to find them.

The traditional source of high yields, electric utilities, is becoming increasingly hazardous. Many pay dividend yields of 7% or higher, but only by paying out over 90% of their earnings--making them likely to cut their dividends if their profits decline. Yield-minded Wall Streeters instead are seeking out lower-yielding utilities that offer dividend growth. Energy companies are also finding favor, as are banks, which are boosting dividends and paying respectable yields despite their recent runup.

`DEPRESSED.' But the star of the income-stock parade is a bedraggled sector--drug companies. Despite continued worries about the Clinton health-care program, large ethical-drug manufacturers are beginning to be snapped up because of their dividends, which are high but perfectly safe and now exceed 5%. "We've been wading into the drug stocks because their yields are very attractive," says Bill Stromberg, portfolio manager of the T. Rowe Price Dividend Growth Fund, which began operation at the beginning of the year.

Viewed from an income standpoint, the case for the drugmakers is compelling. Four major pharmaceutical manufacturers--Bristol-Myers Squibb, Syntex, Upjohn, and Eli Lilly--are paying dividends of 5% or better. For Bristol-Myers, its 5% yield is the highest since the 1987 crash--and the stock has doubled since then. Syntex Corp., which boosts its dividend at an annual rate of 20%, is yielding 5.3%, an all-time high. And Upjohn Co.'s 5.1% yield is nearly double the 2.8% yield that it was paying after the 1987 crash. These yields may not last long. "As soon as the [Clinton health program] is spelled out, you'll see these stocks spring up again because they have been unreasonably depressed," says Geraldine Weiss, editor of the Investment Quality Trends newsletter in La Jolla, Calif.

In contrast to the drugmakers, who are Wall Street's whipping boys, bank stocks have been covered in glory. Their share prices have risen in tandem with ever-lower interest rates and strengthening balance sheets. Nevertheless, their yields are 3% or more--and they're getting better. An article of faith among the dividend hunters is that it's better to buy into a lower-yielding company with a history of hiking dividends than a higher-yielding company whose dividend is in danger. And banks are boosting their payouts hand over fist. According to Advest Inc., 65 banks raised their dividend in January, vs. one dividend cut, while in February there were 49 dividend increases and no dividend cuts. This trend is likely to continue so long as stable or declining rates boost profits for banks. "Banks can reward their patient shareholders by either buying back shares or increasing dividends, and more and more banks are taking the latter route," says Advest bank analyst Frank J. Barkocy.

TIGHT SQUEEZE. A dividend yield of 3% is, of course, paltry compared with the 6% or better payouts commonly found among electric utilities. But analysts warn that many electric-company yields are not as attractive as they look. For example, Iowa Illinois Gas & Electric Co. and Oklahoma Gas & Electric Co. yield 7.9% and 7.4%, respectively, but both are paying out 99% of their estimated 1993 earnings--which gives investors little breathing room. And nationwide, electric companies are coming under pressure from local regulators, who are scaling back on permitted returns on equity in reaction to ever-lower interest rates, observes Douglas A. Fischer, who tracks power companies for A.G. Edwards & Sons Inc. Fischer favors utilities offering safe, growing dividends, such as Boston Edison, Dominion Resources, and Sierra Pacific Resources.

And what about the quintessential dividend play, IBM? Despite the recent dividend cut and a slight rebound in its share price, Big Blue is yielding a handsome 4%. The consensus among dividend hunters: No way. "I'm not running a dividend-cut fund," says Stromberg. Dividend-hungry investors have a tough time finding high-yielding stocks. But they're not that desperate.

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