According to the earnings multiplier model, all else equal, as the dividend payout ratio on a stock increases, the: A. P/E ratio will decrease. B. P/E ratio will increase. C. required return on the stock will decrease.
According to the earnings multiplier model, the P/E ratio is equal to P0/E1 = (D1/E1)/(ke - g). As D1/E1 increases, P0/E1 will increase, all else equal.
