Firms that have poor profitability are more likely to be non-dividend paying. Selecting only dividend paying stocks can serve as a check on poor profitability. Using positive ROE to control for poor performance can result in bogus results without additional filters. For example, if both the numerator (net income) and the denominator (average equity) are negative, ROE will be positive.
Also, Firms that pay less dividends reinvest the profit and give the returns to the investors in terms of capital appreciation …( share price increase)
Ghazoo whats your question here?
The above is from Schweser. I was trying to understand it. Sorry for the confusion.
- num / - denom = + ans
depends on alot of things like industry, future expectations, cost and revenue. firms make investments based on those factors.