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 are the final five companies:
Cincinnati Financial Corp. (NASDAQ:CINF) is a $5 billion market cap company that engages in the property casualty insurance business in the United States. The stock sells for close to book value and earnings are scheduled to recover to $1.47 per share this year. With fifty-one consecutive years of dividend increases, Cincinnati Financial is a S&P 500 Dividend Aristocrat. The current dividend is $1.61 per year and the latest regular quarterly dividend of $0.4025 is slated to be paid on January 17. The year-end yield was 5.29%.
Avon Products, Inc. (NYSE:AVP) is a $7.5 billion market cap company that engages in manufacturing and marketing beauty and related products worldwide. The stock trades with a PE of 10 and is estimated to earn $1.76 both in 2011 and this year. The dividend is $0.92 per year with the latest regular quarterly dividend of $0.23 being paid December 1, 2011. The payout ratio is 54%. The year-end yield was 5.26%.
Health Care REIT, Inc. (HCN) is a $10 billion market cap independent equity real estate investment trust. The company is estimated to earn $3.37 per share for 2011 and $3.37 per share this year. The company specializes in health care real estate including senior living. The current dividend is $2.86 per year with the latest regular quarterly dividend of $0.715 being paid November 21, 2011. The dividend has been increased on a regular basis over the past fifteen years. The year-end yield was 5.25%.
Hudson City Bancorp Inc. (NASDAQ:HCBK) is a $3 billion market cap bank holding company for Hudson City Savings Bank which is the largest savings bank in the United States. The stock trades at 2/3s of book value. The company is slated to return to profitability during 2012 and is estimated to earn $0.67 this year. The dividend is $0.32 per year and the latest regular quarterly dividend of $0.08 was paid November 30, 2011. The year-end yield was 5.12%.
Integrys Energy Group, Inc. (NYSE:TEG) is a $4 billion market cap company that primarily operates as a regulated electric and natural gas utility company in both the United States and Canada. The company is estimated to earn $3.35 per share for 2011 and $3.59 per share this year. The dividend is $2.72 per share per year and the latest regular quarterly dividend of $0.68 was paid on December 20, 2011. The dividend has increased in each of the last ten years. The year-end yield was 5.02%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.