THE concept of a dividend seems simple enough. It's the cheque which arrives at the shareholder's doorstep when a company distributes its profits. For many investors, the small, windowed envelope is a welcome sight. That cheque, even if comparatively small against your larger investments, can act as a useful stream, albeit sometimes a trickle, of income. But there's more to a dividend than the perforated cheque. The first point to keep in mind is what lies behind it. The exact amount of the dividend depends on how much cash the company needs to retain in order to keep its operations intact. If net profit after tax is $2.5 million, for example, and the company decides to distribute half of its net profit to its shareholders, then a figure of $1.25 million is left to be divided among the investors. If there are one million shareholders, then the dividend is one million into $1.25 million, or $1.25 per share net dividend. In an ideal world, the shareholder of a very good company who is not seeking a constant flow of income perhaps might not be interested in a dividend at all. Provided the company was profitable, no dividend, hopefully, would mean that the money was being ploughed back into the business - so that ultimately the company would be worth more when the time came to sell the investor's shares. Among most investors, however, a different attitude prevails. A dividend is the one physical element of an investment which the shareholder actually sees. As a result, many use it as a measure of a company's health, counting on the dividend rising in line with the earnings growth. But how reliant the shareholder is on the dividend depends on the nature of the investment. If a share is bought for the potential for the company's earnings per share to grow, then the absolute level of the yield should not be too important. This is not always the case, however. Some shares are bought for income, particularly when the prospective yield is higher than the market average. Pension fund managers, for example, may rely on these yields. Nevertheless, investors seeking shares for income alone should be wary. A strong balance sheet, a chairman's commitment to pay the dividend, a strong forecast for earnings growth, and a decent P/E are among the criteria such investors should seek. Even then a dividend-based investment is still a risk.