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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 third 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. We would note that last year the overall S&P 500 index showed price appreciation of 29.60 percent and dividends of 2.3 percent for a total 2013 return of 31.9 percent. The fifteen Dogs of the S&P 500 from 2013 showed price appreciation of 18.1859 percent and dividends added 6.5239 percent for a total return last year of 24.7098 percent. With dividend paying stocks garnering continued interest from all types of investors, we think this could be a good strategy for 2014. To that end, we have computed the highest yielding stocks in the S&P 500 as of December 31, 2013, and are profiling the 15 highest yielding companies in this three part article. Here are the first five companies:

Windstream Corporation (NASDAQ:WIN)

Windstream stock closed the year at $7.98 giving the company a market cap of $ 4.76 billion The company provides telecommunications services. Earnings are estimated to increase this year to $0.42 from the $0.34 estimate for 2013 The dividend is $1.00 per share. The year-end yield was 12.53%.

Frontier Communications Corporation (NASDAQ:FTR)

The stock closed the year at $4.68 giving the company a market cap of $4.65 billion. Frontier is a communications company that provides both regulated and unregulated voice, data and video services to both retail and wholesale customers. Book value is $3.91 per share. The dividend is $0.40 per year. The year-end yield was 8.60%.

CenturyLink Inc. (NYSE:CTL)

The stock closed the year at $31.85 giving the company a market cap of $18.83 billion. CenturyLink operates as an integrated communications company. The dividend was reduced during 2013 from $2.90 per share to a more sustainable $2.16 per share. Book value is $28.16 per share. The year-end yield was 6.78%.

First Energy (NYSE:FE)

The stock closed the year at $32.98 giving the company a market cap of $13.79 billion. First Energy is a diversified energy holding company engaging in the generation, transmission and distribution of electricity in the United States. The dividend is $2.20 per share per year. The year -end yield was 6.67%.

HCP, Inc. (NYSE:HCP)

The stock closed the year at $36.32 giving the company a market cap of $16.57 billion. HCP is an independent hybrid real estate investment trust investing primarily in the healthcare sector. Earnings are estimated to increase slightly this year from 2013.The dividend is $2.10 per share per year. The year-end yield was 5.78%.

Source: Dogs Of The S&P 500 - Part 1