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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 (link to Dogs Of The S&P 500 - Part 1). 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 second five companies:

Health Care REIT, Inc. (NYSE:HCN)

The stock closed at $53.57 giving the company a market cap of $15.46 billion. The company is an independent equity real estate investment trust investing primarily in senior living and healthcare properties in the United States. Earnings per share are estimated to increase to $4.00 per share in 2014. The dividend is $3.06 per share per year. The year-end yield was 5.71%.

Pepco Holdings, Inc. (NYSE:POM)

The stock closed at $19.13 giving the company a market cap of $4.78 billion. Pepco engages in the transmission, distribution and supply of electricity. The book value is $17.23 per share. The dividend is $1.08 per share per year. The year-end yield was 5.65%.

Entergy Corporation (NYSE:ETR)

The stock closed the year at $63.27 giving the company a market cap of $11.28 billion. Entergy engages in electric power production and the retail distribution of electricity in the United States. The dividend is $3.32 per share per year. The year-end yield was 5.2474%.

Ensco plc (NYSE:ESV)

The stock closed the year at $57.18 giving the company a market cap of $13.35 billion. Ensco provides offshore contract drilling services to the oil and gas industry worldwide. Book value is $53.92. Earnings per share are estimated to increase to $7.04 this year from last year's estimate of $6.24. The dividend is $3.00 per share per year. The year-end yield was 5.2466%.

AT&T, Inc. (NYSE:T)

The stock closed the year at $35.16 giving the company a market cap of $185.22 billion. AT&T provides telecommunication services to consumers, businesses and other providers in the United States and internationally. Earnings per share are estimated to increase to $2.68 per share this year from an estimated $2.47 per share last year. The dividend is $1.84 per share per year. The year-end yield was 5.23%.

Source: Dogs Of The S&P 500 - Part 2