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 2012. To that end we have computed the highest yielding stocks in the S&P 500 as of December 31, 2011 and are profiling the 15 highest yielding companies in a three-part series. Here is the first batch of companies:
Federated Investors, Inc. (NYSE:FII) is a $2 billion market cap asset management holding company. The company is slated to earn $1.50 per share for 2011 and $1.62 per share this year. The dividend is $0.96 per year with the latest regular quarterly dividend of $0.24 paid November 15, 2011. The dividend has steadily increased over the past ten years from $0.18 per year to the present $0.96. Additionally, in 2008 and 2010 Federated paid special cash dividends of $2.76 and $1.26 per share. The current payout ratio is 62% and we look for the dividend to increase in the future. The year-end yield was 6.33%.
AT&T (NYSE:T) is a $175 billion market cap company and an American icon. The company provides telecommunication services to consumers, business and other service providers worldwide. The company is estimated to have earned $2.24 per share in 2011 and is expected to earn $2.45 per share this year. The dividend is $1.76 per year with the latest regular quarterly dividend of $0.44 slated to be paid February 1. The dividend is secure and should gradually increase in the future. The year-end yield was 5.82%.
Altria (NYSE:MO), the "old Phillip Morris," is a $59 billion market cap company that manufactures and markets cigarettes, smokeless products and wine. Earnings estimates for 2011 are $2.04 and $2.19 per share for this year. The dividend is $1.64 per year with the latest regular quarterly dividend of $0.41 scheduled to be paid on January 10. Altria has increased its dividend 45 times in the last 42 years. The year-end yield was 5.53%.
Reynolds American Inc. (NYSE:RAI) is a $24 billion market cap company that manufactures and sells cigarettes and other tobacco products in the United States. Earnings estimates for 2011 are $2.78 per share and $2.98 per share for this year. The current dividend is $2.24 per year with the latest regular quarterly dividend of $0.56 paid January 3, 2012. The dividend has increased every year but one in the past decade. The year-end yield was 5.41%.
Pepco Holdings, Inc. (NYSE:POM) is a $4.5 billion market cap utility company that engages in the transmission, distribution and supply of electricity and natural gas. The company is estimated to earn $1.23 per share in 2011 and $1.27 per share this year. The dividend is $1.08 per year and the latest regular quarterly dividend of $0.27 was paid December 30, 2011. The year-end yield was 5.32%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.