Can someone please simplify the relationship between persistence factor and payout ratio and ROE?
Bit lost on their relationship.
High Persistence Factor (Low payout + Histrory of Persistence)
Low Persistence (High ROE, High Accruals)
Persistence factor ranges between 0 and 1. persistence factor of 1 indicates that ROE will continue to grow at a high rate for perpetuity, higher than required rate of return. Persistence factor of 0 indicates that ROE will drop right away to required rate of return.
I do not have a clear relationship with the persistence factor and the payout ratio, but I think it will relate to the growth of the company, if it is still in the high growth phase then there will be low payout and vice versa.
Hope it was of use!