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Re: The relationship of P/E and Dividends. 

By: monkeytrots in GRITZ | Recommend this post (1)
Sat, 24 May 25 3:19 AM | 7 view(s)
Boardmark this board | Grits Breakfast of Champeens! 		Msg. 08714 of 08726
(This msg. is a reply to 08707 by Zimbler0)
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Zim - got that thing with gittin older .. CRS - can't remember squat.

I don't remember posting about P/E ratios - especially to a group that have a pretty good grasp on financial measures. I used to peek in on that stock board that you and Snappits ran - value stocks with good dividend returns.

Your post here is interesting - looking at trailing EPS and current dividend levels. A ratio below 1.0 meaning they ain't got the ooomph to keep paying that high a dividend. Good observation.

One might milk that for a bit more - a ratio higher than 1.0 would show what percentage of earnings are left over for re-investment. That insight is also of value when one looks at the niche the company is in and raises one to consider whether further investment by the company in that niche would produce more profits or whether the company needs to look for other opportunities for reinvesting those excess earnings. IE. what is the growth potential, if any, for that company/stock with their excess earnings, and are the management wise enough to do so.

No earnings - a huge red no-go flag for me.




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The above is a reply to the following message:
The relationship of P/E and Dividends.
By: Zimbler0 in GRITZ
Fri, 23 May 25 11:09 PM 		Msg. 08707 of 08726

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'.)

>>>
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.
>>>

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.

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