NEW YORK ( TheStreet) -- When you're evaluating a dividend-paying stock, the absolute primary thought has to be the viability and sustainability of the dividend itself. Find a company for which neither rain, nor sleet, nor dark of night will keep that courier from delivering a 3% payment to your account every year.The clearest danger to a dividend is a lack of cash flow. When a company has weak cash flow, the dividend is among the first costs to be cut -- because this at least allows the company to appear to be bolstering that key metric. But a dividend stock that stops paying its dividend is of little value to anyone's portfolio.
Facts About DividendsHere's a quick lesson on basic dividend concepts, as well as some terms for new investors, or for those who would like a refresher. First of all, dividends are generally paid on a quarterly basis and can be raised, cut or eliminated at each interval. Again, investors should be most interested in a firm that consistently and steadily raises its payout. If someone says a stock has a 3% dividend, this is known as the yield. The yield is the ratio of the annual payment to the current share price (annual dividends per share divided by current price per share) -- so, given a constant rate of payment, the yield and stock price always move in opposite directions. Another often-heard phrase, and an important factor in dividend investing, is the ex-dividend date. Investors need to buy a stock before this date in order to qualify for the dividend in any given period. Because buyers on the ex-dividend date will not receive the dividend income, if for example a company pays out $0.20 a share every quarter -- and all other things being equal -- the shares will likely open about $0.20 lower on the ex-dividend date. The one wrinkle in all of this is that the dividend itself is usually not paid out until two to four weeks after the ex-dividend date. But investors can sell shares any time on or after the ex-dividend date and still receive the payout, even if the stock is no longer in their account. Of course, as I said earlier, dividend investors generally employ a longer holding period than a couple of weeks, but this remains a salient point to remember when you sell a dividend-paying stock.
Dividend investors, find dividend stock ideas in our dividend investor center. Also, don't forget to bookmark our list of high-dividend stocks and ex-dividend date calendar.