Shamrock Dogfood Company (SDC) has consistently paid out 40 percent of its earnings in dividends. The company’s return on equity is 16 percent.
What would you estimate as its dividend growth rate?
Given the low risk in dog food, your required rate of return on SDC is 13 percent. What P/E ratio would you apply to the firm’s earnings?
What P/E ratio would you apply if you learned that SDC had decided to increase its payout to 50 percent