Impacts on P/E

Why do expected higher earnings growth rates and higher dividends have a positive effect on P/E?

Because P indirectly represents the present value of future E’s. Therefore, the higher the future earnings growth rate, the higher the price § today.

Since E in the P/E ratio is commonly E0 or E1 (earnings today and earnings a year forward, respectively), the P captures more accumulated expected growth than a simple E0 o E1 do now.

P/E increases.

Cool, thanks!