P/E Ratio Correlation to Payout Ratio

[800peace]

(06-01-2015, 02:27 PM)EricL Wrote: Here is an article I wrote that talked a bit on payout ratios.

I made up this table to show the payout ratios in a easier to digest form, although it could probably use a "10" value for PE on there now that I look at it again.



In my opinion payout ratio in itself doesn't tell much of a story without taking into account growth rates, valuation, business type, etc. It is a piece of the puzzle, but I have my doubts if it could be used as any sort of forecasting tool by itself.

(06-01-2015, 04:32 PM)EricL Wrote:

(06-01-2015, 04:13 PM)800peace Wrote: I totally agree that the payout ratio can lead due-diligence astray. I actually created a thread called "My Beef w/ Payout." I did find the association between p/e and payout interesting and had to hypothesize and experiment. It wasn't the pot of gold I was hoping, but it is helping me tackle the energy and financial sectors, (I find these sectors hard to analyze).

You aren't alone. Energy is difficult due to the cyclical nature. I'd recommend focusing on high credit ratings and good long term track records in the energy sector. It takes a strong stomach to hold during the downturns like we are currently experiencing, but if you are able to add on pullbacks and focus on quality, the reinvestment of dividends are a nice bonus when prices rise once again.

I also don't own much for financials either due to difficulty in valuing them. The only bank in my personal portfolio is Wells Fargo (WFC) and I also have some Ameriprise Financial (AMP), which is an insurance/asset management company.

I've noticed energies and financials can be a little too boom and bust. Plus a lot of the ratios and financial statement numbers I rely upon are all over the map... I almost think you have to be an insider to know what the heck happened in a energy or financial business.