Abstract
This paper examined the impact of dividend policy on the profitability of selected quoted manufacturing firms in Nigeria from 1981 – 2014. The objective was to investigate the existing relationship between dividend policy and profitability of the selected quoted manufacturing firms in Nigeria. Time series data were computed from financial statement of the selected quoted manufacturing firms and stock exchange factbook. Return on Investment (ROI) and Net Profit Margin (NPM) were modeled as our dependent variables while Dividend Payout Ratio (DPR), Retention Ratio (RR), Dividend Yield (DY) and Earnings per Share (EPS) were proxied as our independent variables. Multiple regressions with the aid of Statistical Package for Social Sciences Research (SPSS) were used as data analyses techniques. Multi co-linearity, co-linearity, Durbin Watson, F-statistics and regression coefficient were used to determine the dynamic relationship between the variables. Findings revealed that all the independent variables have positive relationship with the dependent variables except dividend yield. The study recommends that operational efficiency of Nigerian financial market should be deepened and management should strengthen its effort for effective dividend policy that will increase the profitability of the quoted manufacturing firms Nigeria.
Highlights
The conventional thought that dividend policy is relevant and matters on the performance of the firm can be traced to Graham and Dodd (1934) who were proponents of traditionalist schools of thought, later to Lintner (1956) and to Gordon (1960) while Miller and Modigliani (1961) argued that dividend policy is irrelevant under certain assumptions
In this paper we look at dividend policy and the profitability of quoted manufacturing firms such as return on investment and net profit margin as a function of dividend policy
The relationship between Dividend Yield and Return on Investment is positive but weak, the correlation coefficient of 0.34 and 0.82 shows that the relationship between Dividend Yield is weak while the relationship between Earnings Per Share is very strong the regression intercept is positive with the value of 99.65 signifying the positive effect of the independent variables on the dependent variables
Summary
The conventional thought that dividend policy is relevant and matters on the performance of the firm can be traced to Graham and Dodd (1934) who were proponents of traditionalist schools of thought, later to Lintner (1956) and to Gordon (1960) while Miller and Modigliani (1961) argued that dividend policy is irrelevant under certain assumptions. The question is “Can market be that perfect that will make dividend policy irrelevant?” most of the empirical findings have been in favor of the dividend policy relevance hypotheses as postulated by Gordon Most of these findings and the underlying theories are based on the operational efficiency of the capital market and the business environment of the developed country as opposed to the capital market operations and the business environment of emerging countries like Nigeria which is characterized by lack of transparency and poor corporate governance. This makes it difficult for researchers to determine the relationship between dividend policy and the profitability of quoted firms. This paper intends to examine dividend policy and profitability performance of select quoted Nigeria firms
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