There is a trend at the end of each year followed by many income investors. This is the Dogs of the Dow, which is simply made up of the 10 Dow Jones Industrial Average (DJIA) components that have the highest common stock dividend yields. This is widely followed at the start and end of each year, but it has merit all throughout each year because these companies attract so many different dividend strategy investors.

The following look as though they will be the top five Dogs of the Dow for 2014: AT&T Inc. (NYSE: T), Verizon Communications Inc. (NYSE: VZ), Intel Corp. (NASDAQ: INTC), Merck & Co. Inc. (NYSE: MRK), McDonald’s Corp. (NYSE: MCD); and Chevron Corp. (NYSE: CVX) looks as though it will be sixth just behind McDonald’s.

24/7 Wall St. has identified the basics on each component for these 10 Dogs of the Dow. We have also given color on each to see what could drive each one higher or lower in 2014. All these companies are systemically important or they are sector movers on their own right.

Another issue to consider for 2014 is that there will be some serious changes to the Dogs of the Dow, barring any major performance changes in the final three weeks of 2013. Consensus estimates were also based on Thomson Reuters data.

Remember that share performance can alter many of these positions by the time the year ends. That imminent dividend hike from General Electric Co. (NYSE: GE) could drastically alter the order of these, as could any serious portfolio repositioning at the end of the year.

AT&T Inc. (NYSE: T) is the king of dividends, with a 5.2% yield now that shares have sold off to around $34.50. AT&T’s consensus price target is barely above $37, and a fresh analyst downgrade from J.P. Morgan is highlighting what may be continued cellphone trend erosion in 2014. Then there is the risk that it will make a huge international acquisition, which is the last opportunity for serious growth as regulators are not going to allow it to gobble up anything of real size in the United States. AT&T is a repeat as the leading dividend or the top dog in the Dogs of the Dow.

Verizon Communications Inc. (NYSE: VZ) is again the number-two position in the Dogs of the Dow strategy. With shares close to $49.60, its yield is just under 4.3%. Its post-Vodafone deal is adding to earnings, and the telecom giant added debt on the cheap in the largest debt offering of its kind. A lot of the good news may be priced in since it is up so much from its 52-week low of $41.50, but the consensus price target is up just over $54 for the next 12-month period.

Intel Corp. (NASDAQ: INTC) ranks as the number three likely candidate in the dividend strategy, with a dividend yield of almost 3.8%. Intel remains in catch-up mode as it has only just recently begun making an entrance into smartphone and tablet processors arena, even if it dominates in desktop processors. At $23.75, its consensus price target is $24.42 and the 52-week high is $25.98. We outlined before its most recent earnings report that Intel could be a stealth growth stock masquerading as a value stock, and how its stock could ultimately rise to $30 and beyond.

Merck & Co. Inc. (NYSE: MRK) has been a victim of the ongoing patent cliff affecting the Big Pharma sector. At $49.60, Merck is actually less than a buck under its 52-week high, and the consensus price target is up at $51.42. It yields 3.55% as of now. Merck can still lift its dividend if it wants, but the company faces a revenue growth issue, and changes in health care laws may pose “fee” challenges in the coming years. The company also is restructuring, and that could go either way over the next year or two.

McDonald’s Corp. (NYSE: MCD) now has moved up the ladder in its rank from 2013 to 2014 as the fifth highest yield of almost 3.4%. Shares trade around $96, and its runaway stock performance seems to have leveled off handily, even if shares are up more than 12% so far in 2013. Its consensus price target is almost the same as its 52-week high: $103.84 target vs. $103.70 high. It is hard to imagine what can drive McDonald’s higher at the moment. It faces labor cost issues ahead, the move to a healthier menu is not proving to be a vast success and many do not believe it can grow as much as the company has tried to forecast.

Chevron Corp. (NYSE: CVX) is new to the Dogs, and this is because its dividend hike was substantial and shares have lagged the DJIA performance with gains of “only” 17% so far in 2013. At $122.50, the yield is almost 3.3%, and we have already grown to expect another big dividend hike in 2014. Analysts have a consensus price target above $133 for Chevron, and the obvious caveat is that much depends on its ability to manage production costs, along with where the price of oil goes in 2014.

Cisco Systems Inc. (NASDAQ: CSCO) is also making its debut as a Dogs member because 1) its share price tanked after the last earnings report and 2) its dividend hike was rather large considering where it started from. At $21.30, the dividend yield is 3.2%, while its consensus price target is $23.85 and its 52-week high is all the way up at $26.49. Business was signaled as having fallen off the cliff by John Chambers in the latest quarter and analysts bagged it hard. Now Cisco’s restructuring gains may be deemed a failure, unless the company can rekindle some of its lost business. You could even make the likely argument that it has an “accidentally high dividend” now.

Pfizer Inc. (NYSE: PFE) is generally a Dogs member and this year is a repeat. All of the same issues facing Merck seem to be an echo at Pfizer and the $31.40 share price compares to a consensus price target of $32.75 and a 52-week high of $32.50. Its dividend yield is much lower than Merck’s at 3.05%, so Pfizer may need to catch up in that department. Pfizer has already had one recent spin-off and its revenue is expected to decline marginally again in 2014.

E.I. du Pont de Nemours and Co. (NYSE: DD), or simply DuPont, is another repeat Dog, and its dividend yield is currently 2.95%. At $60.55, its consensus price target is $64.00, and the 52-week high is $62.69. DuPont is carving out its lower growth businesses to unlock value, and it could be worth $5 billion by some estimates, versus a total market cap of about $56 billion.

Microsoft Corp. (NASDAQ: MSFT) was a serious gainer in the Dow, and we did not have it as a member of the Dogs of the Dow in 2013. At $38.50, its stock has risen almost 50% so far in 2013. Microsoft offers a 2.9% dividend yield since it raised its payout by almost 22%. With a new chief executive coming soon, a restructuring into a post-Windows company and large buybacks ahead, Microsoft has become the unexpected stealth winner. One word of caution: the stock hit multiyear highs at $38.90 and the consensus analyst target price is down at $36.32 for the next year.

Caterpillar Inc. (NYSE: CAT) was not a Dog in 2013 and it remains a runner-up for 2014, but its stock price drop of 5% so far in 2013 makes it among the worst DJIA stocks of the year. As the on-again and off-again position in the Dogs, it is possible that Caterpillar could get included or kept out of the preliminary Dogs of the Dow for 2014 (see four more runner-ups below). A coming dividend hike from General Electric Co. (NYSE: GE) could keep Caterpillar out as well, assuming it is substantial enough and assuming Caterpillar shares do not make a big run late in the year from bargain hunters. Adding 15% more to its payout also drove it higher into a runner-up in the Dogs of the Dow. Its $84.20 share price generates a dividend yield of 2.85%. The consensus estimate was well over $100 at one point, but the performance and expectations have driven the consensus target price down to about $90.50. Caterpillar’s 52-week range is $79.49 to $99.70. If the emerging markets and heavy infrastructure and mining/land projects come back, then maybe Caterpillar can surprise everyone in 2013.

There are several more wild cards for the last Dogs of the Dow position, all of which are yielding close to 2.8%. These include General Electric Co. (NYSE: GE), Johnson & Johnson (NYSE: JNJ), Coca-Cola Co. (NYSE: KO), and Procter & Gamble Co. (NYSE: PG). Again, GE is the wild card for sure, because it has a dividend hike likely coming by the end of the second week of December.

When you take these into a portfolio for consideration in equal weighting, the yield comes close to 3.5% for the portfolio of the 10 Dogs of the Dow. Some investors get more focused on just the top five dividend yields, and that average would be a yield of just over 4%. Investors love dividends, and the Dogs of the Dow sure generates above-market dividend yields.

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