onthemove wrote:I'm sorry but that is not the case.
Your simple model assumes that the retained dividend contributes to future earnings (and pretty much on a par with the returns on existing capital), and it is that contribution to future earnings that your simple model is using to offset the reduction in ownership.
The simple model was just to show an example of how it works.
Its along the same lines of someone having a savings account and a current account. The savings account has the option to pay its annual interest to either account.
For some they need the income so ask for it to be paid to the current account. For some they want the income but have it paid to the savings account, and then (needlessly perhaps) withdraw capital from the savings account.
For some they don't need the income and ask for it to be kept in the savings account and grow some more. For some they don't need the income but have it paid to the current account where it is then transferred and added to the savings account (again needlessly) as fresh "capital" where it can grow again.
It is simply maths and cashflows from the investors perspective.
I suspect we won't agree on this so it's perhaps pointless continuing.
