As we look ahead for, say, a decade, we know�we know�(what the hell do we know)that the future contribution of
dividend yield will begin at, not 6%, but 1.3%. As to future earnings growth, perhaps it will be better than the rate of 7% for the past 40 years, but I would not bet the ranch on much more than that�and maybe even less. Together, those fundamentals would lead to a market return of 8.3% annually. To do better would require the price-earnings ratio to rise well above its present all-time historic high of 28 times.
So, let's play a little game. With an unchanged P/E ratio, we know that the market return
ought to be about 8%�perhaps 1 or 2 percentage points more or less. If the price-earnings ratio falls to, say, 18 times, the total return on stocks would be not 8%, but 4%. And if the ratio rose to 71, the total annual return on stocks would be 18%.
With a 20% return or there about, PZN looks like a pretty safe bet...