The dividend payout ratio (DPR) is the percentage of net income that is paid out as dividends to shareholders.
In order to calculate the true value of a stock, you should examine the dividend payout ratio of the company and industry historically.
Ex. Apple in 2016. Gross profit, 82.72B. Net profit, 45.69B. Dividends, 12.3B paid out to 5.39B shares; 2.28 per share. That amounts to a dividend payout ratio of about 27%.
Combine your predicted dividend payout ratio with your predicted net earnings of the company to calculate your estimated holding return on the stock. This is where a lower EPS is not so bad if the expected DPR is excellent. Accordingly, a higher EPS on a strong company is not so good if their expected DPR is poor.
Ex. Tesla stands today at a stock price of $323 with an outstanding share count of 164M. Taking Ford Motors' 2016 earnings/dividend performance as a benchmark, suppose that Tesla reaches a similar net profit and dividend payout ratio in 10 years. Then, Tesla's 2026 projected net profit of 4.6B with a 30% DPR yields $8.4 per share (paltry 2.6% true return value).
Perspective: "If you wouldn't hold it, don't buy it!"
Submitted July 14, 2017 at 02:45AM by 101trajectory http://ift.tt/2uljN3V
