Question on multiples valuation and total return

90001's picture
Rank: Senior Chimp | banana points 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!

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Comments (2)

Oct 1, 2018

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

Sep 30, 2018