I have started #Poll2Learn series where we will learn together by poll and explaining my point of view . You are welcome to correct me or provide your input .
Poll#1
Hindustan Unilever Ltd has ROE around 80% . Which of the following option will be certainly reduce it to around 40% in next 8-10 year? #Poll2Learn
It was a poll so every answer is the right answer. But, I will explain my view.
One word used was certainly. I will go with the change in dividend distribution policy to distribute only 20% dividend.
All other reasons may or may not drop the ROE but reducing dividend will certainly going to reduce ROE.
Formula for ROE
OR
HUL has earned EPS of around 28 and given a dividend of 9+13 = 22 + DDT = 26.25.
So it distributes around 95% profit in a dividend.
FY19 HUL book value is 36.31 if HUL reduced dividend distribution to 20% of profit then from next year onward book value will increase by 22 , 22+ G ..................
HUL is so big that it can not grow more than double of nominal GDP or not feasible so management distributes more than 90% profit .
If HUL decides to keep 80% profit then book value will become more than 400 in 10 years . It will be impossible for HUL to earn EPS of 320 on it to satisfy ROE of 80. Even ROE of 40 will be very much difficult.
Poll#1
Hindustan Unilever Ltd has ROE around 80% . Which of the following option will be certainly reduce it to around 40% in next 8-10 year? #Poll2Learn
It was a poll so every answer is the right answer. But, I will explain my view.
One word used was certainly. I will go with the change in dividend distribution policy to distribute only 20% dividend.
All other reasons may or may not drop the ROE but reducing dividend will certainly going to reduce ROE.
Formula for ROE
OR
HUL has earned EPS of around 28 and given a dividend of 9+13 = 22 + DDT = 26.25.
So it distributes around 95% profit in a dividend.
FY19 HUL book value is 36.31 if HUL reduced dividend distribution to 20% of profit then from next year onward book value will increase by 22 , 22+ G ..................
HUL is so big that it can not grow more than double of nominal GDP or not feasible so management distributes more than 90% profit .
If HUL decides to keep 80% profit then book value will become more than 400 in 10 years . It will be impossible for HUL to earn EPS of 320 on it to satisfy ROE of 80. Even ROE of 40 will be very much difficult.
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