Comments on: Dividend Analysis - Paychex Inc (NASDAQ:PAYX)

By: Aaron

Aaron — Tue, 23 Oct 2007 22:26:16 +0000

PAYX looks like a pretty good play for the portfolio. The dividend growth is quite impressive there and the valuation seems to be pretty good compared to its peers as well.

By: average_joe

average_joe — Thu, 18 Oct 2007 02:19:43 +0000

I believe that the S&P 500 PE is usually in the 15 to 17 range. But I would have to confirm that.

So yes, this is a fairly high PE at 28.69. It is far below the historical PE values. But it does not seem an unreasonable level for a future EPS growth rate of 15%.

Typically, when I look for a future PE, I will use the more conservative of the historical PE or the current PE. But, I will also use a rule of thumb of 2 times the future EPS growth rate. I’ll then use whichever number is lower.

As you’ll see, when I sometimes analyze a utility with a future EPS growth rate of 4%. I will typically assign a future PE of 8 - even if the lowest historical PE is at 15. Why? Because I think that PE is just too high for such low growth prospects. And if I am right about the low EPS growth rate, that PE will contract.

By: The Dividend Guy

The Dividend Guy — Wed, 17 Oct 2007 13:10:24 +0000

Hey Joe - Thanks for the analysis. Do you think that you P/E ratio is a bit high? I know historically it falls in place, but I might be a bit more conservative with the ratio. It is higher than the average P/E for the S&P.

Just wondering…