Section 4 of the SSG in Toolkit 6

This FAQ covers questions regarding Evaluating Reward and Risk over the next 5 years (section 4) of the SSG form in Toolkit 6.


Q: What does Price Dividend Will Support mean in section 4 B, Future Low Price?

A: Price Dividend Will Support is meant to select a potential future low price for the stock. The idea is that if the stock’s yield approaches historically high levels, investors who seek income will become more interested in the company and thus prevent the stock from dropping past a certain low price (the lower the price, the higher the yield as long as the company doesn't cut the dividend).

Since Price Dividend Will Support is calculated by dividing the Present Dividend (for the entire year) by the stock’s high yield (The highest number from the % High Yield column in section 3) written as a decimal, instead of a percent. It is only relevant for high yielding stocks. The price obtained in this section is one where people who buy primarily for yield are likely to come into the market, and their buying is likely to support the stock at about that price.

Keep in mind that the low price the dividend will support is only a valid selection when the yield is substantial, such as when (as a low price) it is still higher than [Projected Future Low P/E Ratio] multiplied by [Estimated Future Low EPS].