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Dogs of the S&P 500? Yes, you read the headline correctly, and, no, I did not mistakenly insert "S&P 500" in place of "Dow." This is our second annual Dogs of the S&P 500 series. Most of us are at least acquainted with the classic Wall Street strategy known as "Dogs of the Dow," which was first popularized some twenty years ago. The strategy calls for buying shares of the ten highest yielding companies in the thirty stock Dow Jones Industrial Average. A major part of the attraction of the rules-based strategy is its simplicity, but inherent in the strategy of attempting to discover high dividend yielding value stocks that have fallen out of favor are elements of reversion to the mean and dollar cost averaging.

One major shortcoming of the "Dogs of the Dow" is, with only 30 stocks in its universe, it becomes unlikely to produce a diversified portfolio. After giving the matter some thought, we decided it seemed intuitive that the strategy could be improved by applying the same theory to the larger and more representative S&P 500 Index. With dividend paying stocks garnering additional interest from all types of investors, we think this could be a particularly good strategy for 2013. To that end, we have computed the highest yielding stocks in the S&P 500 as of December 31, 2012, and are profiling the 15 highest yielding companies in this three part article. Here are the first five companies:

Pitney Bowes Inc. (PBI)

The stock closed the year at $10.64, giving the company a market cap of $2.14 billion. The company provides mail processing equipment and solutions globally. The company's business is stable, and the stock has a P/E ratio of only 5 (with earnings estimated at $1.99 per share). The dividend is $1.50 per year, with the latest quarterly dividend of $0.375 paid December 11, 2012. The company has increased dividends per share for the last 30 years. The year-end yield was 14.09%.

Windstream Corporation (WIN)

The stock closed the year at $8.28 giving the company a market cap of $4.87 billion. The company provides telecommunications services. The dividend is $1.00 per share with the latest regular quarterly paid October 15, 2012. The payout ratio to adjusted free cash flow is 66%. Earnings per share are estimated to increase 10% this coming year. The year- end yield was 12.07%.

R.R. Donnelley & Sons Company (RRD)

The stock closed the year at $8.99 giving the company a market cap of $1.62 billion. The company provides printing, logistics and business process outsourcing worldwide. The company is growing faster than the mature general print market. The dividend is a stable $1.04 per share per year. The year- end yield was 11.56%.

Frontier Communications Corporation (FTR)

The stock closed the year at $4.28 giving the company a market cap of $4.27 billion. Frontier is a communications company that provides both regulated and unregulated voice, data and video services to both retail and wholesale customers. The dividend was reduced last year from $0.75 per year and is now a more sustainable $0.40 per year. The year-end yield was 9.35%.

CenturyLink Inc. (CTL)

The stock closed the year at $39.12 giving the company a market cap of $24.42 billion. CenturyLink operates as an integrated communications company. The dividend is a stable $2.90 per year and the last quarterly dividend of $0.725 was paid December 21, 2012. Book value is $32.41 per share. The year-end yield was 7.41%.

Click here for Part 2.

Source: 2012 Dogs Of The S&P 500 To Buy Now - Part 1