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 (1900-2022) 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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