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Most of the large-cap companies that are included in the S&P 500 index pay dividends. As a matter of fact, 405 of these companies pay dividends. The chart below presents the current annual dividend yield distribution among the S&P 500 companies.

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Data: Zacks

S&P 500 Index

Description from Standard & Poor's:

Widely regarded as the best single gauge of the U.S. equities market, this world-renowned index includes 500 leading companies in leading industries of the U.S. economy. Although the S&P 500® focuses on the large cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market. S&P 500 is part of a series of S&P U.S. indices that can be used as building blocks for portfolio construction.

In my previous post, I tried to determine if the five stocks that have the highest dividend yield among the large-cap stocks included in the S&P 500 index are a bargain now. In this article, I try to determine if the five S&P 500 second-best dividend yielders are currently a bargain.

In this article, I will give the corresponding fundamental parameters for these five companies and my own opinion about them. Nonetheless, these data and my opinion should only serve as a basis for further research. All the data for this article were taken from Yahoo Finance and finviz.com on January 16 before the market open.

The table and the chart below present the top five second-highest dividend yielders, their forward annual dividend rate, the forward yield, the payout ratio and the dividend rate of growth for the past five years.

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Cliffs Natural Resources Inc. (NYSE:CLF)

Cliffs Natural Resources Inc., a mining and natural resources company, engages in the production of iron ore pellets, fines and lump ore, and metallurgical coal.

Cliffs Natural Resources has a very low trailing P/E of 5.75 and a very low forward P/E of 12.15. The price to sales ratio is also very low at 0.87. The forward annual dividend yield is very high at 6.79%, and the annual rate of dividend growth over the past five years was very high at 58.4%. The payout ratio is only 33.6%.

CLF has a total cash per share of $0.26, and it is expected to post a profit of $3.61 a share in the current year and $3.15 in 2013, which should be enough to sustain dividend payments of $2.50. But the company also has a huge debt of $4.18 billion, and it might decide to decrease the dividend rate in the future in order to decrease its debt.

CLF stock is trading 51.17% below its 52-week high, and has 22% upside potential based on the consensus mean target price of $44.88.

The compelling valuation metrics, the very rich dividend, the 22% upside potential based on the consensus mean target price of $44.88, and the fact that the stock is trading way below its book value (price to book value is only 0.83) -- make CLF stock quite attractive.

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Data: Yahoo Finance

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Chart: finviz.com

Pepco Holdings, Inc. (NYSE:POM)

Pepco Holdings, Inc., through its subsidiaries, engages in the transmission, distribution, and supply of electricity.

Pepco Holdings has a trailing P/E of 16.70 and a forward P/E of 15.36. The price to sales ratio is very low at 0.85. The forward annual dividend yield is quite high at 5.63%, and the payout ratio is at 93.9%. The annual rate of dividend growth over the past five years was only 0.8%.

POM has a total cash per share of $0.50, and it is expected to post a profit of $1.20 a share in the current year and $1.25 in 2013, which should be enough to sustain dividend payments of $1.08. But the company has also a huge debt of $5.43 billion, and it might decide to decrease the dividend rate in the future in order to decrease its debt.

Most analysts rate the POM stock as a hold, and I think this rating is the most appropriate.

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Data: Yahoo Finance

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Chart: finviz.com

Reynolds American Inc. (NYSE:RAI)

Reynolds American Inc., through its subsidiaries, manufactures and sells cigarette and other tobacco products in the United States.

Reynolds American has a trailing P/E of 16.09 and a low forward P/E of 13.62. The forward annual dividend yield is quite high at 5.56%, and the annual rate of dividend growth over the past five years was at 6.8%. The payout ratio is at 88.3%.

RAI has a total cash per share of $2.22, and it is expected to post a profit of $2.95 a share in the current year and $3.12 in 2013, which should be enough to sustain dividend payments of $2.36.

The RAI stock is trading 0.94% above its 20-day simple moving average, 1.35% above its 50-day simple moving average and 0.94% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrends.

Most analysts rate the RAI stock as a hold, and I think this rating is the most appropriate.

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Data: Yahoo Finance

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Chart: finviz.com

FirstEnergy Corp. (NYSE:FE)

FirstEnergy Corp. operates as a diversified energy company. The company, through its subsidiaries, engages in the generation, transmission, and distribution of electricity.

FirstEnergy has a trailing P/E of 15.76 and a low forward P/E of 13.33. The price to sales ratio is also quite low at 1.03. The forward annual dividend yield is quite high at 5.52%, and the annual rate of dividend growth over the past five years was at 1.9%. The payout ratio is at 87%.

FE has a total cash per share of $0.36, and it is expected to post a profit of $3.34 a share in the current year and $2.99 in 2013, which is enough to sustain dividend payments of $2.20. The company has also a huge debt of $18.7 billion, and it might decide to decrease the dividend rate in the future in order to decrease its debt.

FE stock is trading 20.17% below its 52-week high, and has 12.1% upside potential based on the consensus mean target price of $44.70.

Most analysts rate the FE stock as a hold, and I think this rating is the most appropriate.

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Data: Yahoo Finance

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Chart: finviz.com

AT&T, Inc. (NYSE:T)

AT&T Inc., together with its subsidiaries, provides telecommunications services to consumers, businesses, and other providers worldwide.

AT&T has a trailing P/E of 43.84 and a low forward P/E of 13.29. The forward annual dividend yield is quite high at 5.33%, and the annual rate of dividend growth over the past five years was at 2.4%. The payout ratio is very high at 229.9%.

AT&T has total cash per share of $0.39, and it is expected to post a profit of $2.37 a share in the current year and $2.54 in 2013, which should be enough to sustain dividend payments of $1.80.

AT&T will report its latest quarterly financial results on January 24. AT&T is expected to post a profit of $0.48 a share, a 14.3% rise from the company's actual earnings for the same quarter a year ago. The reported results will probably affect the stock price in the short term.

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Data: Yahoo Finance

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Chart: finviz.com

Source: 5 S&P 500 Second-Best Dividend Yielders, Are They Bargain Stocks Now?