The yield of many dividend stocks is around 3 %, why that number?  From George Cloutier’s book Profits Aren’t Everything, They’re the Only Thing, HarperCollings 2009, a number of rules are given based on Mr. Cloutier many years of experience. Mr. Cloutier’s company, American Management Services,  specializes in turnaround of small and medium sized businesses, and they follow a plan. One of the basic rules is for the owners of the business to pay themselves a salary of 3 to 4 cents of each dollar of revenue for doing the job of CEO, while maintaining a profit in the top tier of their business grouping.

Other rules to follow in the book include the owner should receive the largest salary to ensure others know who is in charge. Mr. Cloutier company has a plan that they bring to their clients and part of their work is for the companies to live the plan. This means the company estimates their profit for the year and equally the expected expenses. If revenues go down, start shaving your expenses so your profit stays constant. A plan allows the owner to expose profit leaks and then problems can be solved. There are a variety of other rules Mr. Cloutier believes in including pay for performance, collect the money you are owed, ensure the numbers to run your company or your metrics are done daily or hourly and the owner can see them. These and other ideas including how to grow your business (a great example is a car dealership – the people who come in for servicing their car are they seen as potential new owners?) are outlined in the book.

Linking to dividend paying stocks, the important aspect is the companies that pay dividends continue to make a profit and continue to pay you. Most of the time, you will not have to worry about how the company manages its finances, but whether it is a large company or small one, there are many overlaps and worrying about costs never goes away. If your company is not managing to maintain its profits first, then it is time to look for companies that do.

There are more questions than answers, till the next time – to raising questions