PEG ratio may be defined as the P/E ratio divided by the 1 year forward eps growth forecast. It adjusts p/e to account for expected growth in earnings to better compare different stocks.
However, it seems to me that earnings growth is also related to payout ratio or dividend yield because dividends a company pays out are not available for future growth. My question is..does anyone know how to incorporate dividend yield inte PEG equation so that dividend yield can be properly considered? In other words, how might this equation be modified to include dividends? One idea that comes immediately to mind would be: P/(E*(1+(G+D))) where P is price, E is earnings, G is forecasted 1 year ahead earnings growth and D is dividend yield..in other words... add dividend yield to earnings yield...but I am not sure about this. Any comments would be appreciated.
