The end of the calendar year is a symbolic time for many people because it offers an opportunity to reflect on both shortcomings and achievements. This happens to be particularly true for the investment community. End-of-year results are often used as a measuring stick to differentiate between strategies that will remain unchanged and others that need to be adjusted.

With this large-scale evaluation in play every year, a number of high-profile investment strategies move into the spotlight, one of the most popular being the “Dogs of the Dow.” The Dogs of the Dow is a strategy that buys the 10 highest yielding Dow 30 stocks with an annual re balancing.

Dividends and Value

It’s common sense that every smart investor loves a good dividend, a steady stream of income to support a total return. But when the market is volatile, dividend gains can be marginalized by capital losses. So in order to position the Dogs of the Dow against capital depreciation, I decided to apply a key valuation metric to the 10 Dogs to cull the list down to 5 high-value, high-income picks.

The following is a list of the 5 Dog of the Dow that have the lowest P/E multiples, providing a very nice combination of income and value for a more defensive approach to dividend investing.

5 Dogs With Value

Kraft Foods Inc. (KFT) manufactures and sells food and grocery products worldwide. Shares of KFT are currently pumping out a hefty yield of 4.40%, enough to make any seasoned dividend investor sweat. With the current-year estimate up 5 cents in the last 2 months to $1.99, shares trade with a P/E just a pinch over 13X, a discount to the overall market. Kraft has been consistent over the last year, beating in each quarter by an average of 10%. The next-year estimate looks solid too, projecting 9% earnings growth.

Merck & Co Inc. (MRK) is a drug manufacturer that operates primarily in the United States. MRK are currently yielding a very solid 4.20% yield to go along with consistent results, beating by an average of 7.50% over the last 4 quarters. The company’s next-year growth projection is a bit anemic at 5%, but the valuation picture is compelling, with shares trading at just 11.5X forward earnings.

Pfizer Inc. (PFE) also develops and manufactures pharmaceuticals worldwide. Shares of PFE have posted big gains over the last 9 months, but the valuation picture is still in check with a high-value forward P/E of just 9X. Analysts are projecting next-year earnings growth of 11%, and the company boasts a very respectable 3.60% dividend yield.

AT&T Inc. (T) operates as a communications holding company. AT&T might not be a mover and shaker of the capital side, but you can’t argue with its robust 5.90% dividend yield. The company has beat the Zacks Consensus in each of the last 3 quarters by an average of 6% and boasts a respectable 6% next-year growth projection.

Verizon (VZ) operates as a communications provider in the United States and internationally. Verizon clocks in with a very solid 5.70% dividend yield to go along with its value driven P/E of 13X. The next-year estimate is projecting marginal growth, but a large-cap stock like this could come back into favor with investors if the market turns lower.

Conclusion

Dividend stocks are powerful resources for driving long-term gains. But adding a valuation metric to your selection criteria can give your portfolio an extra boost and avoid unwanted volatility.

Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Surprise Trader Service. Zacks Investment Research