10 Dividend Picks From Jeremy Siegel

by: Insider Monkey

Jeremy Siegel is the Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania. Siegel developed the "S&P 10 investment strategy", which invests in the 10 highest yielding stocks among S&P 500 companies. The strategy has proven to generate superior returns over-time. According to Siegel, the strategy outperformed the Dow 10 over 1958 to 2003. If one had invested $1000 in these high yielding stocks of the S&P 500 index at the end of 1957, he/she would have over $811,000 in 2003, beating the Dow 10 by over 1% per year.

Below we compiled a list of the top 10 S&P 500 stocks with the highest dividend yields.



Dividend Yield

52-week Return

Frontier Communications




R.R. Donnelley & Sons




Windstream Corporation




CenturyLink, Inc.




Pitney Bowes Inc.




AT&T, Inc.




Altria Group Inc.




Federated Investors, Inc.




Reynolds American Inc.




Pepco Holdings, Inc




Reynolds American Inc is the best-performing stock on the list above. It returned 35.13% over the past 52 weeks, versus 2.13% for SPY in the same period. Reynolds is a manufacturer of cigarettes and smokeless tobacco. For the third quarter of last year, the company had a diluted EPS of $0.7, up from $0.67 for the same period a year earlier. RAI has a dividend yield of 5.38% and a P/E ratio of 18.25. At the end of September, there were 15 hedge funds with RAI positions. For example, Jim Simons' Renaissance Technologies had $50+ million invested in RAI at the end of the third quarter.

Altria Group Inc also generated double-digit returns over the past 52 weeks. It gained 26.81% in that period, beating the S&P 500 index by more than 24 percentage points. Similar to Reynolds, Altria is engaged in manufacturing and sales of cigarettes, smokeless products, and cigars. Additionally, Altria also has segments of wine and financial services. The company reported net income of $1.17 billion for the third quarter of 2011, versus $1.13 billion in the same quarter of 2010. MO has a market cap of $59B, a P/E ratio of 17.31, and a dividend yield of 5.67%. There are 28 hedge funds reported to own MO in their 13F portfolios at the end of September. Tom Russo's Gardner Russo & Gardner had the largest MO position. The fund invested nearly $200 million in MO at the end of the third quarter.

Frontier Communications Corporation has the highest dividend yield among the S&P 500 index stocks. It has a dividend yield of 14.73%. But the stock did not perform well over the past year. It lost 39.76% in the past 52 weeks. FTR has a market cap of $5B and a P/E ratio of 33.93. Frontier mainly provides communication services to rural areas and small and medium-sized towns and cities. As of September 30, 2011, there are 13 hedge funds with FTR positions. Jim Simons' Renaissance Technologies and Louis Bacon's Moore Global Investments both initiated new positions in FTR over the third quarter.

These 10 stocks returned -3.07% on average over the past 52 weeks, versus 2.13% for SPY in the same period. Despite that, we still like the S&P 10 strategy. We like dividend stocks because they are less volatile and they historically delivered better returns than stocks and long-term treasury bonds. This is a perfect time to pick dividend stocks over long-term bonds. We do not like the Fed's expansionary monetary policy and we are concerned that it will lead to inflation. Therefore, we have been encouraging investors to purchase strong dividend stocks. Following Siegel's S&P 10 investment strategy is one way of doing this.

Disclosure: I am long T, FTR, CTL.