Question on multiples valuation and total return

90001's picture
Rank: Senior Chimp | 27

Simple question that I'm having some trouble thinking through - After calculating a comps-based valuation, is it appropriate to add the Co's expected yield to calculate a 1-yr expected holding period return?

A simple example:
Price: $10/share
Earnings: $1/share
Dividend: $1/share
Peer Avg. P/E: 11x

Expected Return: $1/share (multiple expansion) + $1/share dividend received = $2/share or 20% return

I apologize if this is a dumb question but appreciate the help. Can't seem to determine if I'm double counting the dividend here. Thanks!

Comments (2)

Oct 1, 2018

Total return is gonna be (change in price)+(change in P/E)+dividend yield

Oct 1, 2018