Respond to at least two of your fellow students’ or instructor posts in a substantive manner. Each response should have a minimum of 100 words and be respectful of others’ opinions and beliefs that differ from your own.
Airrol’s Post
Selected publicly traded company that pays dividends: Lowes
Most recent stock price:
$197.36
Total dividends paid over the past year:
January 31, 2022 – $1.984B
A 16.43% increase from 2021
Current dividend yield:
$1.05/$197.36= 5%
Required rate of return (Ke):
10%=(1.05/197.36)+.005
Current P/E ratio:
14.37
The relationship between Lowes’ Ke and P/E ratio indicates that the common stock of Lowes does not pose any high risk to an investor. The future of Lowes’ cash flow has a steady growth potential. Since the P/E ratio for Lowes is not high, it means that the stock is not overvalued and the rate of return at 10% is profitable over time. If Lowes were to grow its dividends by a rate higher than 5%, then the stock price of Lowes may increase to above the $200 price point. Home Depot’s P/E ratio is 17.20 and Ace Hardware’s P/E ratio is 9.69, making Lowes ratio higher than the average of the other 2. Home Depot’s stock runs the risk of being overpriced compared to Lowes if their Ke is the same or lower. If Ace Hardware’s Ke were the same, their lower P/E would be an attractive investment. Paying more for Home Depot’s stock in such a similar industry might lead to it having the lowest rate of return.
Corporate Finance Institute. (2023, March 13). Price Earnings Ratio.
https://corporatefinanceinstitute.com/resources/valuation/price-earnings-ratio/
Michelle’s Post
Company – NextEra Energy
NextEra Energy is an energy company that just joined Aristocrats. They have increased dividends year over year for the past 25 years. They have decided that they will increases dividends by 12% every quarter (://www.kiplinger.com)
Dividend yield = 1.23/73.25= 1.7
Required Rate of return
Ke-d1p0+g
1.23/73.25+6%= 1.7+5%= 6.7%.
PE Ratio 34.70- We know that the company has promised a 12% increase in return every quarter. This makes this stock enticing,
Comparison Companies
International Business Machines: P/E- 24.56- This company has lower P/E than Next Era. It distributes at 24.56 times. The lower P/E my make it a safer option.
Albemarle- P/E- 51.34- This P/E is very high meaning investors are willing to pay more for the stock. It may be overvalued. This may indicate a higher cost for a lower return.
https://finance.yahoo.com/quote/NEE/Links to an external site. https://learn.financestrategists.com/finance-terms/pe-ratio/good/Links to an external site.
https://www.kiplinger.com/investing/stocks/dividend-stocks/602237/65-best- dividend-stocks-you-can-count-on-in-2021#skip-to-div-kke9azhn