InvestorQ : As an investor should I focus on ROE or on dividend yield?
Lavanya Subramanian made post

As an investor should I focus on ROE or on dividend yield?

Answer
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Mahima Roy answered.
2 years ago


A shareholder earns from a company on two fronts. Firstly, there is the dividend that is paid out by the company on an annual or quarterly basis. Secondly, there is the money that is ploughed back into the business which is instrumental in creating future growth. The Return on equity (ROE) is therefore a more credible measure of shareholder rewards than purely looking at the dividends paid out. That is the reason why over a longer period of time, it is the companies that reinvest more money profitably in the business that tend to outperform the companies that pay out high dividends. Dividend yield has a role to play as a broad market indicator as also to calibrate a list of stocks that have limited downside risks. However, as an investment argument, the utility of dividend yields is fairly limited!