) If a stock pays a dividend of $1.30 annually, has earnings-per-share of $4.50, and closed yesterday at $76.50, then which of the following statements is true? (Approximation is fine!)
a. The dividend payout ratio is 82.8%
b. The dividend yield is 5.7%
c. The P/E Ratio is 17
d. All of the above
Dividend? Where in the problem statement did the word dividend appear?
The dividend yield is 5.7%
To determine which statement is true, we need to calculate the dividend payout ratio, dividend yield, and P/E ratio based on the given information.
1. Dividend Payout Ratio:
The dividend payout ratio is calculated by dividing the annual dividend by the earnings-per-share (EPS). In this case, the annual dividend is $1.30 and the EPS is $4.50.
Dividend Payout Ratio = (Dividend / EPS) * 100
Dividend Payout Ratio = ($1.30 / $4.50) * 100
Dividend Payout Ratio ≈ 28.89%
Therefore, statement a, "The dividend payout ratio is 82.8%," is incorrect.
2. Dividend Yield:
The dividend yield is calculated by dividing the annual dividend by the stock price. In this case, the annual dividend is $1.30 and the closing price of the stock is $76.50.
Dividend Yield = (Dividend / Stock Price) * 100
Dividend Yield = ($1.30 / $76.50) * 100
Dividend Yield ≈ 1.70%
Therefore, statement b, "The dividend yield is 5.7%," is incorrect.
3. P/E Ratio:
The P/E ratio (Price-to-Earnings ratio) is calculated by dividing the stock price by the earnings-per-share (EPS). In this case, the stock price is $76.50 and the EPS is $4.50.
P/E Ratio = Stock Price / EPS
P/E Ratio = $76.50 / $4.50
P/E Ratio ≈ 17
Therefore, statement c, "The P/E Ratio is 17," is correct.
Based on the calculations, the correct statement is c, "The P/E Ratio is 17."