PEGY Ratio Explained: The Better PEG Metric for Dividend Investors

While the PEG ratio is an excellent tool for evaluating growth stocks, it has one significant limitation: it ignores dividend yield. This is where the PEGY ratio comes in - a more comprehensive metric that accounts for both growth and income.

What is the PEGY Ratio?

The PEGY ratio (pronounced "PEG-Y") is an enhanced version of the PEG ratio that incorporates dividend yield into the calculation. It provides a more complete picture of a stock's total return potential, especially for dividend-paying companies.

The Formula

PEGY Ratio = P/E Ratio ÷ (Earnings Growth Rate + Dividend Yield)

Example Calculation:

P/E Ratio: 18
Earnings Growth Rate: 12%
Dividend Yield: 3%
PEGY Ratio = 18 / (12 + 3) = 18 / 15 = 1.20

Why PEGY Ratio Matters

The Dividend Blind Spot

Traditional PEG ratio treats these two stocks the same:

Metric	High Growth Tech	Dividend Aristocrat
P/E Ratio	20	20
Growth Rate	15%	10%
Dividend Yield	0%	5%
PEG Ratio	1.33	2.00
PEGY Ratio	1.33	1.33

The PEG ratio makes the dividend stock look expensive, but PEGY reveals they offer similar total return potential (15% growth vs 10% growth + 5% dividend).

When to Use PEGY vs PEG

Use PEGY When:

✅ Analyzing dividend-paying stocks
✅ Comparing growth stocks to dividend stocks
✅ Building an income-focused portfolio
✅ Evaluating total return potential
✅ Screening mature, established companies

Use PEG When:

✅ Analyzing non-dividend paying stocks
✅ Evaluating high-growth tech companies
✅ Comparing pure growth plays
✅ Focusing solely on capital appreciation

Interpreting PEGY Values

The same rules apply to PEGY as PEG:

PEGY < 1.0: Potentially undervalued
PEGY = 1.0: Fairly valued
PEGY > 2.0: Potentially overvalued

However, PEGY gives a more accurate assessment for dividend stocks.

Real-World Example: Tech vs Dividend Stock

Let's compare a tech stock to a utility company:

Company A: High-Growth Tech

Stock Price: $200
EPS: $4
P/E: 50
Growth: 45%
Dividend: 0%
PEG: 1.11 (appears fairly valued)
PEGY: 1.11 (same as PEG)

Company B: Utility Dividend Stock

Stock Price: $60
EPS: $3
P/E: 20
Growth: 5%
Dividend: 4.5%
PEG: 4.00 (appears very expensive!)
PEGY: 2.11 (actually more reasonable)

Insight: The utility's PEG ratio of 4.00 makes it look terribly overvalued, but its PEGY of 2.11 shows it's offering decent total return (9.5% combined) for its valuation.

Advantages of PEGY Ratio

1. Total Return Focus

Captures both price appreciation and income generation.

2. Better for Mature Companies

Many established companies have modest growth but pay substantial dividends.

3. More Accurate Comparisons

Fairly compares high-growth, no-dividend stocks to slower-growth dividend payers.

4. Income Investor Friendly

Helps retirees and income investors find attractively valued dividend stocks.

Limitations and Considerations

Dividend Sustainability

Not all dividends are created equal. A high yield from an unsustainable payout is misleading.

Check:

Payout ratio (should be < 80%)
Dividend growth history
Free cash flow coverage

Growth Rate Accuracy

Like PEG, PEGY depends on accurate growth estimates.

Sector Variations

Different industries have different typical PEGY ranges.

PEGY Ratio Best Practices

Verify Dividend Safety - Check payout ratios and cash flow
Use Forward Estimates - Base on projected growth, not historical
Compare Within Sectors - Banks vs banks, utilities vs utilities
Consider Dividend Growth - Rising dividends add extra value
Look at Total Return - Growth + dividend should meet your needs

How to Calculate PEGY on StockPEG

Our platform automatically calculates PEGY for all dividend-paying stocks:

Enter any ticker symbol
View instant P/E, PEG, and PEGY calculations
Compare dividend stocks side-by-side
Screen for undervalued dividend payers
Analyze 10-year historical trends

Try our free PEGY calculator →

PEGY Screening Strategy

Here's a simple strategy to find undervalued dividend stocks:

PEGY < 1.5 - Reasonable valuation
Dividend Yield > 2.5% - Meaningful income
Payout Ratio < 70% - Sustainable dividend
5-Year Dividend Growth > 5% - Growing income
Debt-to-Equity < 1.0 - Financial stability

Use our Stock Screener to apply these filters across 65+ global markets.

Key Takeaways

PEGY = P/E / (Growth + Dividend Yield)
Better than PEG for dividend stocks
PEGY < 1.5 often indicates good value
Always verify dividend sustainability
Use for total return analysis
Essential for income investors

Next Steps

Calculate PEGY ratios for your favorite dividend stocks
Screen for dividend value across global markets
Learn about PEG ratio for growth stocks
Master stock valuation with all key metrics

Disclaimer: This content is for educational purposes only. Always conduct thorough research and consult a financial advisor before making investment decisions. Dividend stocks carry risks including dividend cuts and price volatility.