If a company's return on equity is lower than its cost of equity capital, then the higher the dividend payout ratio the higher the P/E of the stock.

Question

Quizplus · Accepted Answer

If a company's return on equity is lower than its cost of equity capital, then it is destroying value for shareholders. In this case, the higher the dividend payout ratio, the lower the P/E of the stock, as investors will be less willing to pay a premium for a company that is not generating a sufficient return on its investments.

If a Company's Return on Equity Is Lower Than Its