Dividend Policies

(A Case Study Of Some Quoted Companies Listed In Nigeria Stock Exchanging)

5 Chapters
|
66 Pages
|
9,144 Words

Dividend policies refer to the guidelines and decisions adopted by a company regarding the distribution of profits to its shareholders in the form of dividends. These policies are crucial in determining the amount and frequency of dividend payments and play a significant role in shaping investors’ perceptions of a company’s financial health and future prospects. Companies may choose various dividend strategies, such as a stable dividend payout ratio, where a fixed percentage of earnings is distributed regularly, or a residual dividend approach, which prioritizes reinvesting in the business and paying out the remaining profits as dividends. The choice of a dividend policy depends on factors like the company’s growth prospects, capital requirements, and overall financial objectives, and it reflects the management’s commitment to balancing shareholder returns with the need for strategic reinvestment.

ABSTRACT

Divided policy is an instrument use by the management of a company to respond the behavioural pattern of the owner of shares i.e shareholder. While divide is the portion or reaction of company’s profit that is distributed to the shareholders. There are various method of divided policy depends on the policy of organization this is to say that dividend policy varies from one company to the other. But there is common established fact with regards to the dividend policy. Ti is purely an indoor management affair.
A lot has been said by some renowned theorists authors operators and regulators of the economy as regard to dividend policy and its effect on market value of shares.
Modigliani and Miller model a theorist postulate in their irrelevance theory that dividend has nothing to do with market value of shares based on assumption while of shares based on assumption while Walter’s and Gordon’s models are of relevant theory that a value of shares respond proportionality to the dividend trend. Gordon models goes further by testing his thesis by way of econometric equation to substantiate his argument likewise efficient market hypotheses (E.M.H) shows how the forces of demand and supply dictates the value of shares in relations to dividend policy and the problem encounter in random walk.
Though the research work reveal other factor that is to be considered to determine the value of shares like investment opportunity viability of the company and strength.
This research work was carried out using two companies as a case study with their five years financial statement. This enable us to critically establish the real effect of dividend on market value of shores from one company to the other and econometric equation of Gordon’s model was used to analyze the data by way of matrix

TABLE OF CONTENT

Title page
Approval page
Dedication.
Acknowledgement
Abstract
Table content

CHAPTER ONE
1.1 INTRODUCTION
1.2 Statements of problem.
1.3 Objective of the study
1.4 Hypotheses
1.5 Significance of the study
1.6 Scope of the study
1.7 Limitation of the study
1.8 Definition of terms

CHAPTER TWO
2.1 LITERATURE REVIEW
2.2 Introduction
2.3 Models of shares valuation
2.4 Summary of the chapter

CHAPTER THREE
3.1 RESEARCH DESIGN AND METHODOLOGY
3.2 Characteristics of population of study
3.3 Sample and sampling procedure
3.4 Data collections and processing procedure
3.5 Instrument for data collection

CHAPTER FOUR
4.1 PRESENTATION AND ANALYSIS OF DATA
4.2 Introduction
4.3 Data presentation
4.4 Data analysis
4.5 Test of hypotheses
4.6 Summary

CHAPTER FIVE
5.1 Summary of findings conclusion and recommendation
5.2 Findings
5.3 Conclusion
5.4 Recommendation

CHAPTER ONE

INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Dividend policies decision is concerned with the determination of the corporate earnings that is generated through the successful operation of the company in a financial year, which is to distribute among the key players that ensure the realization of the successful outcome of he operation of the organization and the amount of the proportion of this earnings to be retained.
Dividend earnings decision policy is widely considered in the business world as strategic in corporate finance as well as corporate performance and growth. Dividend policy directly influences the behavioural pattern of the investor ie. Shareholders. Because the purchaser of the company i.e shareholder actually buys a dividend expectation; because of the dividend policy decision implication on the behavioural pattern of the shareholder be it positive or negative the corporate world impose the responsibility of this great task of he board room affairs.
Dividend policy decision as a tool in the strategic corporate finance as well corporate performance and growth affect the share price as well as cost of capital. In other words on option dividend policy is the policy that maximizes the wealth of shareholder.
Due to obvious reasons shareholders consider impotence to dividend. The importance that the individual shareholder places on dividends depends on his level of wealth and preference for capital gains amongst others. In an environment with progressive personnel income taxes the individual with more wealth will tend to profess capital appreciation on shares then dividend. At a lower level of income the capital gain tax rate is higher then the personal income tax rates however the reverse is the case with increased income. The wealthy individual among the diverse shareholders may then prefer capital appreciation on his share due to the at mentioned reasons.
Though the bulk of he shareholder nay not be in this category the company is then placed in a situation of reconciling the difference or taking the potion that seems more favovrable to the company. This is ht some things as saying that the management of the company will take the option that optimizes the value of he company’s shares.
It is often claimed that the company’s investment decisions and dividend decision are independent of the shareholder’s decision. It should be noted that this might not be entirely true some there is replay procedures that protected the aggrieved shareholders.
Beside these the shareholders might exercises their right through the selling of their shares on the stock exchange and this has negative consequences on the value of the company’s share in the market which in turn affect the fortune of he company.
The primary aim of this research work is to find out whether the in dividend pays out stimulates responses on shares value. It is believes in some garters that the dividend pay out has something to do with value of shares yet some people stated otherwise. Dividend in this content means the amount distributed to shareholders of a company by way of return investment that are not so interested in the measure of soundless of he company. This issue is even more pronounced when criticism that are normally levied against accounting measure of profitability are mentioned.
There are many criticisms regarding the measure of profitability in the accounting sense. E.g. profit measurement by accountant depends on the assumption and policies used. Hence the ability of he company to pay dividend can be stated to measure the sounded and profitability of a company.

1.2 STATEMENT OF PROBLEM
Though dividend policies decision is guided by legal framework as prescription in the company and allied matters decree (CAMD) of 1990 as to what constitute dividend in the corporate rate earning and the method in which the dividend policies decision can be taken.
Although there are many constraints inherent in dividend policies research work reveals other factors to be considered in order to determine and study will only concern on two opposing view or argument associated with dividends policy decision.
These arguments can be highlighted as thus:
i. IRRELEVANT ARGUMENT/ SCHOOL OF THOUGHT
This posted that given the investment decision of the firm the dividend pay out is a merely details that dividends policies does not affect the wealth of the shareholders that is it is of need.
ii. RELEVANT ARGUMENT
Posited that high tax payer prefer low dividend yield while institutional investor who do not pay tax prefer high yield or profit

1.3 OBJECTIVE OF THE STUDY
The objective of he study include the following:
i. To analyze the basic models of share valuation with a view to answering such question as what are their simikritics and difference what is the extent to which dividend payout affect the value of shares of source listed companies etc.
ii. To determine whether Education in dividend have anything to do with the value of shares.
iii. To show whether any of the shares valuation models cannot with reality

1.4 STATEMENT OF THE HYPOTHESIS
An hypotheses is a statement of fact to study put forward by a researcher as a starting point for reasoning to guide him in human research work which may be true or false valid or otherwise if he data collected by the research indicated that majority support the fact that is valid it is therefore accepted otherwise it is not and hence rejected for the purpose of this research of study the major hypothesis considered are.
H0: Fluctuation in dividend payout by some listed companies has effect on the value of shares.
H1: Fluctuation in dividend payout by some listed companies has no effect on the value of shares.

1.5 SIGNIFICANCE OF THE STUDY
The research work is intended to be of food use to anybody involved in the process of dividend payments and receipt. For example companies management and investor. The study by analyzing some dividend share valuation models intention show the logic behind these modems.
There is no doubt that some shareholders will be expecting high dividend some might be different and source even prefer no dividend situation. In fact some attend annual (general) meeting (ACM) in other to know the actual dividend declare for the year.
However it is beneficial to the companies in the policy making such as follows.
i. It enhance the image the organization e.g financial soundness
ii. It will attract investors
iii. Increase market shores prices
iv. Room for expansion
v. It increase and enabling the sources for fund in the capital market.
The study will be reference sources to future researchers

1.6 SCOPE OF THE STUDY
As a result of the fact that the possibility of obtaining internal information is very remote data analysis will be restricted to facts obtained from listed company’s published financial statement and stock exchange daily official lists.
The study looks at the patterns of some shares before dividends are declared and the behaviour of such shares to the public and investors as a whole. This is with a view to identifying whether shores prices respond to dividend declaration and payout.
The day in which dividend are approved for payment by the shareholders at the annual general meeting is assumed to be the day that such dividends are declared and the day when dividend warrants are posted to respective shareholder is regarded as the payout day.

1.7 LIMITATION OF STUDY
This study will concern itself with situation in the stock market as they relate to the year 1998 1999 2001, 2002.
The research work will limit itself to only principles of dividends terms and abbreviations as they effect the scope of shoes value.

1.8 DEFINITION OF TERM
i. E.P.S (earning per shore) this is the profit after tax of a company dividend by the number of shores in issued and ranking for dividend.
ii. Profit after tax: That is number of shores in issued and ranking for dividend
iii. Price earning ratio: It shows the ratio of earning to the market value of shores.
iv. Interim dividend: This is a dividend a company prior the end of its financial year.
v. Pay out ratio: This is the proportion of total earning (after tax) that is distributed as dividends.
vi. Mm: Modigiliani and Miller: There are two professors of finance who made extensive research on dividend policy and capital structure.

SIMILAR PROJECT TOPICS:
Save/Share This On Social Media:
MORE DESCRIPTION:

Dividend Policies:

Dividend policy refers to the strategy and decisions a company makes regarding the distribution of its profits to its shareholders in the form of dividends. Dividends are typically paid out of a company’s earnings to reward shareholders for their investment and to provide them with a portion of the company’s profits.

There are several different dividend policies that companies can adopt, each with its own implications for shareholders and the company’s financial health:

  1. Regular Dividend Policy: Under this policy, a company commits to paying a fixed amount or a fixed percentage of its earnings as dividends at regular intervals, such as quarterly or annually. This provides stability and predictability to shareholders but might limit the company’s flexibility to invest in growth opportunities.
  2. Irregular Dividend Policy: Companies might choose to pay dividends only when they have surplus earnings. This policy is more flexible and allows the company to retain more earnings for investment during periods of growth or expansion.
  3. Stable Dividend Policy: This policy aims to maintain a relatively constant dividend payout over time, adjusting it as earnings fluctuate. Companies often prefer this approach to signal their financial stability to shareholders.
  4. Residual Dividend Policy: In this policy, a company first funds all its acceptable investment opportunities and then pays out the remaining profits as dividends. This policy ensures that the company is maximizing its growth potential before distributing dividends.
  5. Dividend Smoothing: Some companies attempt to smooth out fluctuations in dividend payments by setting a target payout ratio. This means that they adjust dividends gradually, avoiding sudden increases or decreases.
  6. Low Payout Policy: Companies that are in a growth phase might opt for a lower dividend payout to reinvest more earnings back into the business. This helps fund expansion, research, and development.
  7. High Payout Policy: More mature companies with stable earnings might choose to distribute a larger portion of their profits as dividends, appealing to income-seeking investors.
  8. Special Dividends: These are one-time dividends paid by a company when it has exceptionally high profits, asset sales, or other windfalls. They are not a regular feature of the company’s dividend policy.
  9. Stock Dividends and Stock Splits: Instead of cash dividends, some companies issue additional shares of stock to their shareholders. A stock split involves increasing the number of outstanding shares while proportionally reducing the share price. Both stock dividends and splits don’t provide immediate cash benefits but can affect the overall value of the investment.

When deciding on a dividend policy, companies consider various factors including their financial position, growth prospects, cash flow requirements, industry norms, and the preferences of their shareholders. It’s important for investors to understand a company’s dividend policy, as it can provide insights into the company’s financial health and management’s priorities. However, dividends are just one aspect of a company’s overall strategy, and investors should also consider other factors such as earnings growth potential and capital appreciation.