CFA Level I · CFA Level I Exam · Relative Value Equity Valuation Approaches
A stock trades at 60.00 per share and is expected to pay dividends of 2.40 per share over the next year. Earnings per share are expected to be 4.80. The forward dividend yield and the dividend payout ratio are closest to:
The forward dividend yield is 2.40 divided by 60.00, or 4.0%, and the payout ratio is 2.40 divided by 4.80, or 50%. The 8.0% figure would be the earnings yield, not the dividend yield, so it is wrong.
- AYield 2.4%, payout 40%
- BYield 4.0%, payout 50%Correct
- CYield 8.0%, payout 50%
Explanation
Forward dividend yield = 2.40/60.00 = 4.0%. Payout ratio = 2.40/4.80 = 50%. The first option wrongly uses a 40% payout and a 2.4% yield, and the third option inverts the price base (4.80/60 = 8%, the earnings yield).
Did you get it right without looking?
One question tells you little. A timed set on Relative Value Equity Valuation Approaches shows your real accuracy, how long you take and where you lose marks.
More Relative Value Equity Valuation Approaches questions
- An analyst compares the trailing P/E ratio of a company reporting under IFRS with that of a peer reporting under US GAAP. Which of the follo…
- For valuing an asset-heavy bank or insurer with mostly liquid financial assets marked near fair value, which multiple is most likely to be c…
- Price-to-sales is most likely preferred over price-to-earnings when the company being valued:
- An analyst values a Brazilian bank and a German bank using P/E. Brazilian nominal interest rates and expected inflation are much higher than…
- An analyst is valuing a mature, profitable company with positive and stable earnings. Compared with using price-to-sales, the analyst's prim…
- When valuing banks, analysts most likely favor price to book value over EV-based multiples mainly because: