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Strategies & Market Trends : Strictly: Drilling II -- Ignore unavailable to you. Want to Upgrade?

To: A.L. Reagan who wrote (473)	8/23/2001 4:52:21 PM
From: JWest0926	Read Replies (2) \| Respond to of 36161

<<<It is. By your logic a stock that produced a $5.00 ps dividend each and every year, but the dividend never increased, would be worth exactly zero. By my logic you'd capitalize the dividend at the long-term risk-free rate plus a market risk factor, which for a stodgy fart stock like our example might be 1/2 the normal risk premium, and a price in the range of $50-$60 per share would be derived, significantly greater than the zero your logic implies.>>> A.L. Reagan- I completely agree with you. You are correct. I will continue to value companies based on their PEG ratio's, but you do point out a very valid error in my logic. For my goals and purposes, I would value a company that paid a $5 dividend annually at- [Sum (o to infinity) of $5/1.2] somewhere around $30. As this would approximate my expected return of 20% per year. This would be the stocks PV of future dividends discounted at 20%. If I received less than a 20% return annually I would prefer to look for somewhere more lucrative to invest. However the market would value the security much higher at a market rate of say 7% as future dividends would be discounted at 7% as opposed to 20%. Thank You for pointing out the error in my Logic. The learning that occurs simply due to these boards is outstanding. JWest