CRM - Salesforce Stock: Dividends Provide Valuation Clarity

2024-05-20 13:43:27 ET

Summary

• Salesforce has started paying cash dividends recently.
• Its dividend initiation demonstrates its capital allocation flexibility and the potential for steady yet robust growth ahead.
• It also allows the application of more traditional valuation models (e.g., the discounted cash flow model), which points to some discounts despite its near-record stock price.

Salesforce started paying cash dividends

Among the stocks in the Dow Jones Industrial Average, Salesforce (CRM) is (or at least used to be) some kind of an outlier. Salesforce's P/E ratio is noticeably higher than the Dow Jones Industrial Average (and many times higher than some constitutes in the index). The Dow index is well known for tracking established companies, valuing them based on steady profits (reflected in a lower P/E). Salesforce, however, is a high-growth tech stock and demands premium P/E (as seen in the chart below)....

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