Determinants of dividend payout: The Case of listed companies in Kenya

Abstract

The dividend decision is one of the major policy issues in a firm, impacting on the financing and investment policies arid thus the long term objective of shareholder wealth maximisation. An inapppropriate dividend payout policy may lead to an increase in the firm's cost of capital and reduce the overall return to shareholders. The main objective of this study was to identify the factors that successful listed companies consider in determining the dividend payout to their shareholders. For the purpose of this study, successful companies were defined as those companies that had maintained a positive average EPS over the eight year period from 1999 to 2005 and which had been continuo sly quoted at the NSE over the same period. To facilitate the attainment of the objective of this study, questionnaires were administered to the Finance Directors of respondent companies. The response rate for the questionnaires administered was 76%. Data was presented using tables, graphs and charts from the coded questionnaires. Descriptive statistics in form of means and standard deviation were further used to discuss and present the fiMings. From the study, it was found that successful companies accord key importance to four factors in determining their dividend payout policies. These factors are; the current and future profitability of the company, the cash flow position, the financing requirements and the availability of profitable investments, in that order. The nature of the industry, the size of the company and the number of years the company had been in operation were bound not to significantly affect a company's dividend policy in relation to payout. However, companies in the finance and investment industry rated certain factors such as inflation and the economic growth rate higher as determinants of payout policy, as compared to companies in other industries.