DIVIDENDS ARE NOT GUARANTEED:
Unlike the income of a bond or a fixed deposit, dividends are not certain. Like mutual funds, is a company has no obligation to pay dividends or to maintain the payout ratio. It is entirely at the discretion of the board of a company to declare a dividend.

CHECK THE FACE VALUE OF A SHARE:
Share dividend, the company that is based on the nominal value of shares. If the face value of RS 10, RS dividing the 20% would be 2 per share. If a stock has disintegrated, and only a nominal value of SR 2, 60% of the dividend would result in Rs 1.20 per share.

TRACK PAYOUT RECORD:
Do not buy based on the current high dividend yield. The company could have earned an extraordinary income and, therefore, to give a dividend of one great moment. Check the registration of the dividends in the last 4-5 years and the amount of the distribution.

EXAMINE CASH FLOW:
One way to check if the company can maintain its dividend to examine the flow of cash. Pay special attention to cash flows in its balance of 4-5 years. After accounting for capital expenditures, the amount remaining is the cash flow of the company to repurchase shares or pay dividends. More free cash flow, the greater the likelihood of dividends.

DIVERSIFY TO BE SAFE:
If you are dependent on benefits, do not keep all your eggs in one basket. Diversification of a portfolio of 8-10 stocks. In this way, even if one or two companies do not pay dividends for a year, you have income from July to August warehouses. It is better to have a sectoral diversification, even if it means simply a lower yield dividends.

KEEP IN MIND CHANGES IN TAX TREATMENT:
At this time, income from dividends received by companies and investment funds is tax-free. However, the new income tax code, which should come into force on April 1, 2012 is the proposed tax of 15% on dividend income. Unlike mutual funds where the investor can choose between growth, the opportunity to avoid paying taxes on dividends, stock investors can not avoid this income or on it.

DIVIDEND YIELD FUNDS:
These are diversified equity fund focused solely on dividend yield stocks. Not surprisingly, the dividend yield funds have been outperforming in recent years. They gave an average yield of 24.5% over the last three years compared to 17-20% of diversified equity funds. These funds offer investors the benefits of investing in dividend, with the exception of a regular income. For what would an investor has a choice of either a dividend option or set up a systematic withdrawal plan.

Source: [ET]