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PEGY Calculator – Price/Earnings to Growth and Dividend Yield

Written by:
PK

Here is a PEGY calculator, or price to earnings/growth and dividend ratio calculator. Enter a company's current trading price, its 12-month earnings, its earnings growth rate, and dividend yield to compute its PEGY ratio.

Price/Earnings to Growth and Dividend Yield Ratio Calculator

What is the Price to Earnings to Growth and Dividend Yield or PEGY Ratio?

The price to earnings to growth and dividend yield ratio – also known as the PEGY ratio – compares the current price multiple you pay to acquire a company's equity versus the future growth of the company's earnings and combines it with the dividend yield. 

It's very similar to the PEG ratio – which omits the dividend yield – but does recognize that dividends are a significant part of shareholder returns.

When comparing growing companies, Peter Lynch was a big fan of the PEG ratio – but adjusted it to add dividend yield in the PEGY. You can read more about his reasoning in One Up on Wall Street (affiliate link).

Like with the PEG ratio, Peter Lynch considered a PEGY of 1 to be a reasonable value – and a company to research.

Strengths of Price Earnings to Growth and Dividend Yield

The strengths of the PEGY match those of the PEG ratio but add to it the PEGY's insistence on adding the dividend yield. Dividend payouts are more common from more mature companies, so the initial PEG ratio is biased towards quickly growing small companies, missing out on companies fairly valued by their dividend yield instead of growth rate.

Limitations on the Price Earnings to Growth and Dividend Yield Ratio

Like other ratios, you lose nuance when comparing companies. Unlike ratio-only investing, a true discounted cash flow model (DCF) with appropriate inputs can catch everything (at the risk of adding errors). Remember that ratios can be a good starting point but cover up a lot.

The PEGY ratio includes several factors, but still falls short on others. For example, all price ratios are based on market capitalization, ignoring a company's debt (and cash). On the other hand, enterprise value-based ratios include debt and net out cash to better reflect a company's true value.

Additionally, growth is a sticky factor – all manner of scenarios could increase or decrease the growth rate of a company's earnings. Beware using forward projections... although you do need to use them to fairly value stocks at the end of the day.

Price to Earnings to Growth and Dividend Yield Ratio Formula

The PEGY ratio formula is:

PEGY\ Ratio =\frac{\frac{price}{earnings}}{growth\ rate+dividend\ yield} 

Where:

  • Price - the current trading price of a share of a company.
  • Earnings - the last twelve months earnings per share.
  • Growth Rate - the expected growth in earnings for the next 12 months.
  • Dividend Yield - the current annual dividend yield on the stock.
      

PK

PK started DQYDJ in 2009 to research and discuss finance and investing and help answer financial questions. He's expanded DQYDJ to build visualizations, calculators, and interactive tools.

PK is in his mid-30s and works and lives in the Bay Area with his wife, two kids, and dog.

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