Hey Professor MonkeyTrots,
Seems way back in 2005 or so you typed up a little dissertation on P/E and dividends.
(I suspect you also alluded that the 'published' P/E might be 'smoke and mirrors'.)
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Thus, a P/E of 15:1 will yield a max sustainable dividend of 6.67%. Most would NOT consider this a great rate of return.
A P/E of 10:1 yields 10%,
a p/e of 5:1 yields 20%.
Take any P/E ratio use 1.00 divided by the P/E to get this max yield potential. I don't go above 15:1, because anything higher is basically over-valuation. The 'up and comers', reality based, that one may grant a grace period to (ie. a certain number of years of exception to the rule) are few and far between - imo.
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I want to thank you for that.
And, I have bitter memories of a certain 'power company' . . . that cut their dividend, then ended their dividend. And for some three years the 'published P/E' was LIES. When I finally woke up and started 'educating myself' and learned how to understand at least part of the annual reports . . I found that, for at least three years, that company had had negative earnings. (Should have had a 'no P/E' listed.)
Anyway, lesson learned. Nowadays I get my 'weekly printout' and instead of P/E ratio I get the trailing EPS. And I compare that to the current dividend payout. As long as the EPS covers the dividend pay out I don't lose too much sleep over it.
(Or should I?)
Zim.
Mad Poet Strikes Again.
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