Determinants of Dividend Policy in Nigerian Stock Exchange Companies

Abstract

This study adds valuable insights into the determinants of dividend per share in companies listed on the Nigerian Stock Exchange, shedding light on the key factors that influence dividend policy decisions. By analyzing a sample of 100 companies listed on the Nigerian Stock Exchange, the research employs multiple regression analysis to examine the relationships between various explanatory variables and dividend per share. The findings of the study highlight several important factors that significantly affect dividend per share in Nigerian Stock Exchange -listed companies. Notably, current year earnings per share and previous year dividend per share (-1) emerge as key determinants, exhibiting positive and statistically significant relationships with dividend per share at the one percent level. This underscores the importance of current profitability and past dividend history in shaping dividend decisions. Furthermore, the study reveals that dividend pay-out ratio also plays a significant role in influencing dividend per share, with a positive and statistically significant relationship observed at the five percent level. This suggests that companies with higher pay-out ratios tend to distribute more dividends per share to their shareholders. Additionally, profitability and investment are identified as significant determinants of dividend per share, albeit at the 10 percent level. Interestingly, while profitability exerts a positive influence on dividend per share, investment exhibits a negative impact. This implies that companies with higher profitability levels are more likely to distribute higher dividends per share, whereas those with higher investment levels may opt to retain earnings for future growth opportunities rather than distributing them as dividends. The findings of this study offer valuable insights for company managers and stakeholders in understanding the factors driving dividend policy decisions in NSE-listed firms. By highlighting the significance of earnings per share, dividend per share (-1), pay-out ratio, profitability, and investment, the study underscores the importance of prudent financial management and strategic decision-making in dividend policy formulation. Managers are encouraged to closely monitor these key variables and consider their implications when making dividend distribution decisions, thereby aligning corporate strategies with shareholder interests and maximizing shareholder value over the long term.