If you look at a company's organizational chart, chances are the top box says "CEO." And from a daily operations perspective, that chart is correct. But even the CEO has a boss. Several bosses, in fact. The CEO answers to the board of directors, who are elected by you, the shareholders.
As such, you ultimately own the company, so the CEO works for you. Gratifying, isn't it? It's also an important point to remember. You have money at risk in the firm, and so you deserve the bulk of the company's financial rewards.
Challenging CEOs
Unfortunately, not all CEOs take their responsibility to shareholders seriously. Those that don't may pay lip service to you, but they're really trying to bilk you for all they can.
The past few years have revealed a laundry list of crooked CEOs. Bernard Ebbers of WorldCom. Kenneth Lay and Jeffrey Skilling of Enron. Dennis Kozlowski of Tyco (NYSE: TYC ) . Franklin Raines of Fannie Mae (NYSE: FNM ) . The list goes on. Often, as in each of the cases above, a crook at the top translates to shareholder loss.
A CEO insurance policy
There is no way to be absolutely certain that the person at the helm of a company is honest. After all, the folks named above made the news because they were running (interpret as you may) some of the largest companies in America. If the biggies can get taken to the cleaners by crooks, then no company is truly safe.
Your money's not really safe, either. By investing, your money is at risk. That's just the nature of the stock market beast.
But investors can tame the beast. We can take a few simple steps to save ourselves from massive losses and assure that our CEO is managing our company on our behalf.
The market's money-back guarantee
Chief among those steps is to demand that we get paid in cold, hard cash for the risk we're taking by plunking down our dollars. In other words, we should demand a decent dividend for our troubles. And that dividend should:
- Represent a serious commitment on the part of management to reward the owners.
- Be covered by the company's operating cash flow.
- Grow over time, in line with the company's overall performance.
- Allow the company sufficient financial flexibility to reinvest in the business.
If you find companies that do all of the above and pay out a decent current yield, then you've found the best batch out there. These are the types of businesses that my friend and colleague Mathew Emmert regularly uncovers for Motley Fool Income Investor subscribers.
Fitting the profile
The table below shows a handful of companies that fit the bill.
|
Company
|
Recent
Yield
|
Year-Over-Year
Dividend Hike
|
Estimated
Payout Ratio
|
|
Astoria
Financial (NYSE: AF )
|
3.3%
|
20.0%
|
47.0%
|
|
Cato Corp. (NYSE: CTR )
|
2.4%
|
15.4%
|
37.4%
|
|
Hasbro (NYSE: HAS )
|
2.7%
|
33.3%
|
42.3%
|
|
Johnson & Johnson (NYSE: JNJ )
|
2.4%
|
13.6%
|
40.8%
|
|
PNC Financial (NYSE: PNC )
|
3.2%
|
10.0%
|
43.9%
|
While this list certainly doesn't contain the most exciting names on Wall Street, it does highlight a collection of businesses that have repeatedly demonstrated that they know who the real boss is: you.
The Foolish bottom line
Although dividend-paying companies often go overlooked by folks interested in making a quick buck in the market, they're among the surest ways to build a fortune over the long run. From the cash in our pocket to the executive reality check about who the real boss is, those dividend payments sure do mean a lot.
If you find and invest in businesses (and CEOs) that pay their owners well, you will no doubt be richly rewarded for your efforts. What more could you ask for from your employees?
If you're ready to own companies that treat you as the true boss, then Income Investor is for you. Join today and we'll also throw in the Fool's blue-chip investing report, 10 Monster Stocks to Anchor Your Portfolio, absolutely free. Still not sure? A 30-day free trial starts here.
At the time of publication, Fool contributor
Chuck Saletta
owned shares of Johnson & Johnson. Johnson & Johnson is an Income Investor recommendation. Tyco and Fannie Mae are Inside Value picks. Hasbro is a Stock Advisor pick. The Fool'sdisclosure policyis boss.
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