Having trouble wrapping my head around why a higher justified div yield means overvalued? Can someone please help me out?
Never mind, it’s b/c of g would have to fall in to bring it up to the justified level. I hate the last few days.
They’re paying you a $5 dividend on a $50 stock – 10% – but the justified dividend yield is 12.5%: that would be a $5 dividend on a $40 stock: the stock is overvalued by $10.
higher divident yield is better, higher P/E is worse=overvalued
Thanks Magic man, I owe you a 24 of beer for this week alone.
Quick side question:
I don’t recall any, but is there an equation to find justified dividend yield?
Or is it just something that is simply given to you in the text
There is.
Justified trailing P/E = (payout ratio)(1 + g) / (r – g)
Justified E/P = (r – g) / [(payout ratio)(1 + g)]
Justified D/P = E(payout ratio)/P = (r – g)(payout ratio) / [(payout ratio)(1 + g)] = (r – g) / (1 + g)
so you don’t want a higher dividend yield? can you put that in relation to how schweser explains when P/E isn’t relevant because P sometimes is to high or something? E/P works well in that case right?
I think that you do want a higher dividend yield. You’re getting 10% when you should be getting 12.5%. Why? Because you paid too much for the stock. Buy at a lower price and your dividend yield increases.
It really depends on your investment strategy. For a stock that is a dividend paying stock to value investors, higher price will lower your dividend yield, no good. If your a growth investor, you want a higher price, irrespective of the yield mostly.
It depends if you care if you want more dividend or more price growth.
You want a higher price after you buy it, not before.
Okay feel like there’s misinformation in this thread.
High P/E Ratio as compared to industry- Overvalued
High Dividend Yield as compared to industry - ?
Undervalued.
How dare you argue with the Oracle of AF!
ha ha
