Next year dividend

CFA Level I
#1

D(0) = 1 payout = 40% ROE = 10% calculate D1

#2

1.06

#3

so does it mean that if payout is 0%, dividend will be 1.10?

#4

This is basic question, could anyone explain please?

#5

C’mon man…If you don’t pay anything out, how can you have a dividend??? Growth rate = Retention rate x ROE. Apply the growth rate to earnings, take the payout percent of that, and you get your dividend. The model isn’t perfect due to questions like you just had, but a little intuition will go a long way.