DIVIDEND YIELD vs. P/E RATIO - Crestmont Research
[Pages:1]DIVIDEND YIELD vs. P/E RATIO
DIVIDEND YIELD CONFIRMS MARKET VALUATION (P/E)
P/E Ratio (P/E10)
S&P 500: Dividend Yield vs. P/E Ratio (1900-2020) 45
40
35 30
25 20
15 10
5
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% Dividend Yield
IMPACT OF VALUATION ON DIVIDEND YIELD
Dividend Yield Mathematically Declines as Market Valuation (P/E) Increases.
Illustration: Earnings Per Share (EPS) Dividend Per Share (DIV) Payout ratio
$2.00 $0.90 45%
P/E RATIO
35 30 25 20 17 15 13 10 7
EPS
$2.00 $2.00 $2.00 $2.00 $2.00 $2.00 $2.00 $2.00 $2.00
DIV
$0.90 $0.90 $0.90 $0.90 $0.90 $0.90 $0.90 $0.90 $0.90
(EPS x P/E) DIV PRICE YIELD
$ 70
1.3%
$ 60
1.5%
$ 50
1.8%
$ 40
2.3%
$ 34
2.6%
$ 30
3.0%
$ 26
3.5%
$ 20
4.5%
$ 14
6.4%
Note: This partially explains the reason for currently low dividend yields. Further, the payout ratio of dividends to earnings has historically been 35% to 60% and is currently near the bottom of the range.
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