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10 Best Dow Dividend Stocks for 2011

6. Merck (MRK - Get Report) is a global pharmaceutical company.

12-Month Sales Growth: 88%
12-Month Net Income Growth: -2%
Quarterly Operating Profit Margin: 30%
Cash Flow Multiple: 12 (7% peer premium)
Analysts' Median Target: $41.65
3-Year Dividend Growth: 0%
Dividend Yield: 4.2%
Payout Ratio: 54%

2011 Catalyst: Merck is a solid dividend stock. Its 4.2% yield is third-highest in the blue-chip Dow. However, it hasn't increased the distribution since 2004. As with Pfizer, patent expiry is a concern.

However, analysts see value in Merck shares. A forward earnings multiple of 9.4, a book value multiple of 2 and a sales multiple of 2.5 represent 20%, 61% and 22% industry discounts. The 2009 purchase of Schering-Plough has bolstered earnings, but one-time charges have plagued recent results, most recently, a $950 million reserve related to a recall.

Emerging markets are a growth venue. That geographic segment added 18% of quarterly sales.

Bullish Scenario: Deutsche Bank forecasts that Merck's stock will advance 34% to $48.

Bearish Scenario: Jefferies values the shares at $37.80, implying 5% of upside.

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