Can ant tell me that why in Walter's model,when ROE is greater than required rate of return,then why it is suggested that dividend payout ratio should be zero or reduced

Question

Rashi · Answer

Thank you

Vishnu · Answer

So payout is 0 in this case as the investor is letting the company to retain the returns to give him long term returns in future

Vishnu · Answer

Optimum payout or dividend payout as simultaneously used....when ROE is greater than ke(cost of equity or capital) the company is earning more than the investor expected so..it's better to keep the investment as well as the return to keep with the company for long term better return

Praveen · Answer

Cost of capital (ke) is the company giving returns to investors , return on equity is company earing returns from its investment (r) -When you can invest and get good returns and give the investors more( r>ke )don't pay anything to you investors (0% payout ) on the other hand if you cannot anything that your investors wants (ke>r) pay full returns to them so that they can invest somethwhere else and earn better return

LUKESH · Answer

When ROE more than DRR(Desired rate of Return), Dividend Payout should zero because if ROE is more it means Company is at Growing stage and will focus more on growing more and more by reinvesting for overall growth of the company and investors welfare.

Ayush · Answer

Because at that position company has better ability to reinvest and earn returns

Can ant tell me that why in Walter's model,when ROE is greater than required rate of return,then why it is suggested that dividend payout ratio should be zero or reduced

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