Graham and Doddsville -- Value Investing In The New Era Message Board

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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era

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To: Freedom Fighter who wrote (1126)	1/22/1999 12:09:00 AM
From: porcupine --''''>	Read Replies (2) of 1722

Is a 2% dividend yield an indication that the Market is correctly valued? In a recent Op-Ed piece in the WSJ (1/12/99), Michael Edesess, chief economist at Lockwood advisors, writes: "... Price can be estimated as the present value of future dividends, discounted at the required rate of return .... A bit of mathematics shows that this measure is roughly equal to one divided by the difference between the required rate of return and the anticipated dividend growth rate. "The long-term historical growth rate of corporate dividends is is about 8%, but over the past 20 years the rate has been about 10%. Assuming future growth of 9% and a required return of 11%, the two-percentage-point difference between 9% and 11% is 1/50. Thus, the appropriate ratio of price to dividends is 50, just about what it is now"

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