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Unformatted text preview: : 32 Figure 2.8: Dividends versus Earnings 60 50 Number of firms 40 30 20 10 0
Dividends less than 60%
of Earnings Dividends between 60
and 80% of Earnings Dividends between 80
and 100% of Earnings
Earnings Category Dividends exceed
Earnings Dividends with negative
earnings Data from Value Line: The dividends for each company were compared to the earnings for the
company. Of the 100 firms in the portfolio, 57 had dividends that exceeded their earnings over the last
four quarters and 12 paid dividends even though they had losses for the year.
There are some analysts who would accuse you of being excessively cautious in
your analysis. They would argue that trailing 12-month earnings are depressed because of
poor overall economic growth and that you should be comparing dividends to earnings in a
normal year or sustainable earnings. One simple modification they would recommend is
looking at average earnings over some past period, say five years. While you can accept the
logic of the argument, this is a conservative investment strategy and it seems prudent to use
the toughest test that you c...
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This note was uploaded on 01/17/2012 for the course ECON 101 taught by Professor Econnorm during the Spring '11 term at Art Institutes Intl. Minnesota.
- Spring '11