Knowing to calculate and understanding the usage of P/E ratio is not enough to decide to buy or not to buy a shares. Lets look at the second factor to consider. The share price after taking into consideration the dividend received for the year. Let's look at MBB again.
Published Data @ 20/2/2010 from the star
Dividend 2009 - 8% or RM0.08 (d0)
My required rate of return - 10% (k)
Market Price - RM6.89
let's assume MBB will increase the dividend payout in future year at a fixed rate of 5%, so g - 5%
par value - RM1.00
Based on the above data, what should be the market price of Maybank?.
Based on Gordon growth model, the formula should be:
MP = d1 divide (k-g)
= d0(1+0.05) divide (0.1-0.05)
= 0.08(1.05)/(0.05)
= RM1.68
Well, based on the dividend payout alone, we should NOT buy MBB shares!. Because the current Market Price of RM6.89 is too high when the dividend received is too low.
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