Dogs Of The Dow: 5 Highest Yielding Dow Stocks (MRK, PFE, PG, T, VZ)

The Dogs of the Dow

was proposed by Michael O'Higgins in the early 1990's and it basically says take the 10 stocks with the highest dividend yields and buy them for next year because those stocks should outperform. I'm altering it a little and saying readers may want to concentrate on the top 5 stocks, not the top 10 as a way of reducing equity exposure and really concentrating on the companies. Here is the list of the top 5 "Dogs of the Dow": Verizon

Verizon as defined by its business summary "provides communication services in the United States and internationally. It operates in two segments, Wireline and Domestic Wireless." The company is yielding an astronomical 6.40%, nearly two and half times what you'd get on a 1o year Treasury bond. There are upcoming catalysts in the stock, such as the CDMA version of the iPhone, and a possible split of the wireless division and the wired division. This is a stock one could buy and sleep safely at night knowing that dividend is not going to be cut and definitely increased over time. AT&T

AT&T also has a pretty hefty yield, coming in at 6.30%. This is a well loved stock for income and value investors as they see the brand has enormous cache and a pristine balance sheet. Investors also see the potential loss of the Apple

iPhone exclusivity, which despite the companys' best efforts, would hurt its bottom line severely. AT&T is expanding its U-verse television services as it grows this segment across the country. Merck & Co. Inc.

The Whitehouse Station, N.J. drug maker just closed its acquisition of drugmaker Schering Plough and is the maker of drugs in the areas of bone, respiratory, dermatology, cardiovascular diseases, diabetes and other segments. Merck's problem has been seen as having a weak pipeline with fewer blockbusters, and competition from generic drug makers. Merck is taking steps to combat slowing growth, with joint ventures in China and broadening its exposure to to fast growing markets in Latin America, South America and Asia, ex-China. Merck has a strong balance sheet to sustain and eventually raise its dividend. It is now yielding 4.30%. (Disclosure: The author has relatives working for Merck.) Pfizer

Pzifer, the New York City based drugmaker suffers from the same problem set that Merck does. It faces stiff competition from generic drug makers, a lackluster pipeline. It also faces prospects of management that is getting stale and not delivering on promises. Pfizer recently purchased Wyeth for $42 billion and is currently integrating the last parts of the drugmaker into its operations. Pzifer yields 4.40%. Home Depot

is the place to be if you're remodeling your home or are a contractor remodeling someone's home. The company carries everything from tools, to sinks to appliances. Home Depot has spent years restructuring its balance sheet and operations under CEO Frank Blake. The company employs 193,700 people across the globe and as the economy beings to expand again, this should benefit Home Depot as people look to improve their homes. Home Depot has significant growth opportunities abroad, particularly in South America as more consumers become wealthier and desire upgrades to their living conditions. Home Depot yields a very healthy 3.30%.