If the dividend growth rate increases for a firm, its P/E should:
A) increase.
B) stay the same.
C) decrease.
D) increase or decrease depending how it relates to economic growth.

Question

Quizplus · Accepted Answer

If the dividend growth rate increases, it implies higher future earnings and cash flows, which typically leads to a higher P/E ratio as investors are willing to pay more for the expected growth.

If the Dividend Growth Rate Increases for a Firm, Its