While there is no such thing as a "perfect" dividend stock for all investors, it is not difficult to identify the most desirable characteristics in any dividend stock. The top four are yield, consistency, dividend growth, and the potential for price appreciation.

Yield: It should go without saying that an ideal dividend stock ought to start off with a good yield. That is, on the day you buy it, the stock should yield at least as much as, say, a bank deposit. Extra yield helps compensates for the risk of owning a stock, whose price is never guaranteed and is therefore at risk.

That said, some leeway can be granted on the initial yield because the best dividend stocks increase their dividend payouts, unlike CDs and bonds, which are "fixed income" investments. So a stock whose yield falls a little short of a CD initially may catch and pass it in a year or two.

My personal requirement for the minimum initial yield from a dividend stock is 2.5%. I will go as low as 1.9% for "Dividend Aristocrats," a term used by Standard & Poor's for their list of stocks that have raised their dividends at least 25 consecutive years. At the end of 2007, the last time they compiled the list, there were 59 stocks that qualified. Perhaps surprisingly, not all of them yield at least 1.9%, so don't assume that a steadily growing dividend "must be" high enough just because it is growing. The two are different factors that must be considered separately.

Consistency: The second characteristic is consistency (or reliability), not only in paying the dividend but in growing it too. There is no way to guarantee the future, of course, but we can draw reasonable inferences from past performance and current conditions. So, we want a company that displays:

• An uninterrupted payment of a dividend for at least several years.

• A steady history of raising its dividend most (if not all) years.

• No severe financial difficulties that seem to threaten the dividend.

• An explicit statement from management that they are determined to pay and periodically increase the dividend, or an implied intention based on the historical record plus current management statements recognizing the importance of the dividend.

My favorite company in the last regard is Realty Income (O). It states its purpose as follows: "As The Monthly Dividend Company® our primary goal is to provide dependable monthly income to shareholders." As a dividend investor, you can hardly ask for a clearer statement of management's intentions in regard to the dividend.

Dividend Growth: The third quality of a terrific dividend stock is dividend growth. It is a company's ability to grow its dividend that separates it from "fixed income" investments like bank accounts and bonds.