ABSTRACT
This increased dividend yield is required because the future growth prospects of the business are much lower than in the earlier stages of the life cycle. The lower growth prospects are reflected in a lower P/E ratio, thus shares are given a lower rating by the financial markets, but this does not necessarily lead to a decline in share prices. Earnings per share should be high and increasing slightly, due to efficiency gains, during this stage so that these high eps offset the reducing P/E multiples. The net result should be a much more stable share price, as more of the investors’ expected return is now provided through dividend yield rather than the capital gains which dominated the previous stages. These issues are illustrated in Working insight 6.1.
