Executive Solution Overview
1. WEBSITE: https://www.kiplinger.com/investing/stocks/dividend-stocks/best-dividend-stocks-you-can-count-on#skip-to-div-kke9azhn The value of a common stock is based on the present value of the future cash flows that will accrue to that stock. Of course, the present value calculation necessarily i…
Assignment Prompt & Instructions
1. WEBSITE: https://www.kiplinger.com/investing/stocks/dividend-stocks/best-dividend-stocks-you-can-count-on#skip-to-div-kke9azhn
The value of a common stock is based on the present value of the future cash flows that will accrue to that stock. Of course, the present value calculation necessarily involves the use of a required rate of return (a discount rate), which reflects the risk. The textbook indicates that “To some extent, the two concepts of P/E ratios and dividend valuation models can be brought together. A stock that has a high required rate of return ( _Ke_) because it is risky will generally have a low P/E ratio. Similarly, a stock with a low required rate of return ( _Ke)_ because of the predictability of positive future performance will normally have a high P/E ratio” (Block et al, p. 322). In this discussion, you will examine the relationship between a stock’s required rate of return and its P/E ratio.
**Initial Response:**
For this discussion forum,
– Select a publicly traded company that pays dividends. You may select any publicly traded company that pays dividends, or choose one of the companies discussed in [_Best Dividend Stocks for Dependable Dividend Growth_](https://www.kiplinger.com/investing/stocks/dividend-stocks/best-dividend-stocks-you-can-count-on#skip-to-div-kke9azhn)_._
– Determine the most recent stock price and the total dividends paid over the past year.
– Calculate the current dividend yield on the stock.
– Calculate the required rate of return ( _Ke_) for an investment in the common stock. You should use formula 10-9 in the textbook (SEE PICS) for this calculation and use an assumed growth rate of 5 percent.
– Identify the current P/E ratio for the company from a source such as _Yahoo! Finance_ or _Barron’s_.
In your post,
– Show your calculations of the dividend yield and required rate of return ( _Ke_) and present the P/E ratio.
– Explain the relationship between your chosen company’s _Ke_ and P/E ratio and what that relationship indicates about the risk of the company’s future cash flows.
– Explain whether the general relationship between a high _Ke_ and a low P/E ratio (or low _Ke_ and high P/E ratio) is supported by the data for your chosen publicly traded company.
– Predict the impact on the company’s stock price based on your forecast that the company will grow its dividends by a rate higher than 5%.
– Compare your company’s P/E ratio with the P/E ratios of two other companies in its industry.
– Hypothesize which company in this industry should have the lowest _Ke_ based on the P/E comparisons.
– Summarize the connection between a company’s growth rate, its required rate of return, and its value (stock price).
Be sure to think strategically and apply the concepts from the course textbook.
Your initial response should be a minimum of 200 words. 2 credible resources
2.
For this discussion forum, you will provide a real-world example of how capital allocation was successfully (or unsuccessfully) applied. In your response, please address the following:
– First, use the Library to research an article on capital allocation; many articles are available in the library.
– Then, select and review the article.
– Then, summarize the article and provide a connection between the article’s concepts and readings for the week. Do any of the concepts in your article agree or disagree with the text?
– Finally, based on the findings in your article, explain how the Weighted Average of Cost Capital (WACC) influences investment decisions.
Your initial response should be a minimum of 200 words. 2 credible resources
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