Sir, If Company “A” pays dividend but Company “B” retained its profit 100% and does not pay any dividend. Assume all other things are identical. Which Company’s ROE is greater? and why?
subhayan roychowdhuriIntermediate
ROE – dividend paying v/s non-dividend paying, which is higher? and reason.
Share
ROE= PAT/(Opening Equity)
I think if you want to know the effect on just year like opening Equity equal in both the cases. Then ROE will have no difference btw div and non div paying stock.
But if we are talking about a company which is paying dividend from a long time it will have a lower equity as compared to non div paying company causing because of difference in retained earnings. In such cases a div paying company might have higher ROE because of lower denominator.