Persistence factor and ROE/dividend payout

Ok, maybe I am too much of a #s person, but this doesn’t seem to make sense for me. Why is …if ROE is high then the persistence factor is low? If you’re making high ROE intuitively you think the firm has a competitive strategy thus less susceptible to declines. I understand why if Div payout is low then persistence is high because g= ROE x retention. If the firm is competitive and more persistence it will have high growth. No?

Think of new growth theory (to tie in another concept) High profits ----> competition comes in and erodes them.

Right so in the Long Run your returns should be mean reverting to that of the industry averages… Remember Persistence factor is for PV of continuing residual income where V = Bo + PV of interim high growth RI + PV of continuing residual income

Ok that makes perfect sense now. Yes high ROE means people want in and eventually get more competitive thus persistence level becomes low. That helped so much!

yep, high profits/roe cant persist for long.