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Click here for Part 2.

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 thirty 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. Part 1 is here. Here are the final five companies:

Lorillard Inc. (NYSE:LO)

The stock closed at $116.67 giving the company a market cap of $15.10 billion. Lorillard manufactures and sells cigarettes in the United States. The annual dividend is $6.20 and the last quarterly dividend of $1.55 was paid on December 10, 2012. Earnings are slated to increase from $8.38 in the year just ended to $9.10 next year thereby providing ample support for the dividend. The year- end yield was 5.31%.

People's United Financial (NASDAQ:PBCT)

The stock closed at $12.09 giving the company a market cap of $4.06 billion. The company operates as a bank holding company. The annual dividend is $0.64 and the last quarterly dividend of $0.16 was paid November 15, 2012. The company has a history of increasing the dividend. Book value is $15.20 per share. The dividend is supported by earnings estimated to be $0.74 in the year just ended to $0.82 this year. The year-end yield was 5.29%.

FirstEnergy Corp (NYSE:FE)

The stock closed at $41.76 giving the company a market cap of $17.46 billion. FirstEnergy operates as a diversified energy company engaging in the generation, transmission and distribution of electricity. The annual dividend is $2.20 and the last quarterly dividend of $0.55 was paid December 1, 2012. The dividend is well supported by earnings per share that are estimated to be $3.34 in the year just ended and $3.00 this year. The year-end yield was 5.26%.

TECO Energy Inc. (NYSE:TE)

The stock closed at $16.76 giving the company a market cap of $3.63 billion. TECO is an energy related holding company primarily engaging in regulated utility operations. The annual dividend is $0.88 and the last quarterly dividend of $0.22 was paid November 27, 2012. Earnings per share are estimated to be $1.18 in the year just ended and are slated to be $ 1.14 this year. The year-end yield was 5.25%.

Integrys Energy Group Inc. (NYSE:TEG)

The stock closed at $52.22 giving the company a market cap of $4.07 billion. Integrys primarily operates as a regulated electric and natural gas utility company in both the United States and in Canada. The dividend is $2.72 per share per year and the last quarterly dividend of $0.68 was paid December 20, 2012. The dividend is well supported by earnings per share that are estimated to be $3.23 in the year just ended and $3.43 this year. Additionally, the company has increased the dividend in ten of the last eleven years. The year-end yield was 5.21%.

Source: 2012 Dogs Of The S&P 500 To Buy Now - Part 3