Dividend Investing: A Survivor’s Guide For Life

general electric

Over the course of the 20th century, the valuation for a “typical” S&P 500 stock shifted upward from a P/E ratio of about 10 to a P/E ratio of about 17. Unless you happen to have a nice taste and appreciation for history, this might fall into the category of things that you do not think about a whole lot. But still, it can be a question worth examining: Why are investors, on average, willing to pay $17 for each dollar of a company’s profits when a century ago they were only willing to pay $10 for each dollar of profits. Is this an example of permanent irrationality in the marketplace?

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