PEG Ratio
PEG variant that includes the dividend yield in the denominator, giving credit for income that growth-only PEG ignores. Better suited for high-yield, lower-growth names.
When to use: Use when evaluating dividend-paying stocks where a meaningful share of total return comes from yield. The Lynch-style 1-to-1 rule applies similarly: PEGY ≈ 1 is fair, < 1 is cheap.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| PEGY | PEGY Ratio | P/E divided by (growth + dividend yield), in percent points | integer |
| PE | P/E Ratio | Price-to-earnings multiple | integer |
| GrowthPct | Growth Rate (%) | Annual growth rate in percent points (e.g. 12 for 12%) | integer |
| DY | Dividend Yield | Annual dividend yield as a decimal | % |
Real-Life Examples
Example 1: Dividend Aristocrat at 18× P/E
A consumer staples name trades at 18× earnings with 6% expected growth and a 3% dividend yield.
Given
Step-by-Step
PEGY of 2.0 — pricey on the heuristic, even after crediting the dividend. Plain PEG would be 18/6 = 3.0, so the yield credit improves the read meaningfully but does not rescue an elevated multiple on a low-growth name.
Frequently Asked Questions
Because dividends are part of total return. A 3% yielder growing 6% delivers a similar total to a 9% grower paying nothing — PEG would penalize the former unfairly. PEGY equalizes the two views.
For PEGY to be informative, yes. A 12% yield on a stock about to cut the dividend gives a misleadingly low PEGY. The formula assumes the yield is sustainable; in practice, screen for payout ratio and dividend coverage before trusting PEGY.
Implicitly: the denominator (growth + yield) approximates expected total return. PEGY is essentially "P/E paid per percentage point of expected total return" — a useful normalized valuation read.