By Mark Skousen, Forecasts & Strategies

In August of each year since 1994, I highlight the "Flying Five Strategy." To compile this annual portfolio, I recommend purchase of the five Dow Industrial average stocks with the lowest price from a list of the ten-highest yielding Dow stocks.

This mechanical technique, created by Michael O’Higgins and John Downs in their 1991 book, "Beating the Dow," aims to best the stock index by finding the best bargains.

Since we've followed this technical method of finding bargains, it has worked roughly 70% of the time. It didn't keep up with the high-tech boom of the late 1990s, and failed miserably in 2008, when three of our Flying Five stocks stopped paying dividends altogether.

But most of the time, we've beaten the market. And this year was no exception. While the Dow was up only 5% from August 2011 to August 2012, our Flying Five stocks averaged an 18% gain, including dividends.

All five of our Flying Five stocks were up in the past 12 months and all five beat the Dow average:

•  AT&T (T), yields 4.9% and rose 27.2%
•  Pfizer (PFE) yields 3.7% and rose 23.4%
•  Intel (INTC) yields and rose 20%
•  Kraft Foods (KFT) yields 2.9% and rose 10.4%
•  General Electric (GE) yields 3.4% and rose 7.7%

This is the fourth straight year we have beaten the market handily following the 2008 crisis. The August 2010–2011 return was 28%.

These are the five stocks with the highest dividend yield and lowest price, known as the Flying Five.

According to the close on Friday, July 20, when we reset our annual portfolio, we have three returning stocks in the Flying Five: AT&T, Pfizer and General Electric.

We are replacing Intel and Kraft Foods on last year's list. The new members of the Flying Five portfolio are:

• Merck (MRK) currently yields 3.9%
• JPMorgan Chase (JPM) currently yields 3.3%

We'd note that JPMorgan lost $6 billion in the most recent quarter. Talk about a contrarian play.

Investors can always find the latest "Flying Five" stock selection at www.dogsofthedow.com​ and check the five "small" dogs under "current dogs."

More from TheStockAdvisors.com​:

• Triple Crown Techs: Growth, value, yield
• 10 unloved stocks: A 'John Neff' portfolio
• 6 European turnarounds