A Study on Dividend Policies, Growth in Assets, Return on Assets and Return on Equity at the Nairobi Stock Exchange

Abstract

This study investigates the relationship between dividend policy and return on assets, return on equity and growth in assets. The study relies on companies quoted at the Nairobi stock Exchange to bring out the relationship between dividend policy and return on assets, return on equity and growth in assets. The analysis reveals that companies like Limuru Tea Co. Itd,Brooke Bond, ICDC Investment, BAT Kenya and NIC Bank have maintained a very high dividend payout ratio throughout the period of study. Some companies also paid out dividends from the previous years profits like Kapchorua Tea Company in 1994. Certain companies did not payout any dividends throughout the period of study, such as Kenya orchards ltd. The additional findings are that, (i) The relationship between dividend payout and return on equity is not significant. However in 1998 the relationship was found to be significant. (ii) The relationship between dividend payout ratios and return on assets reveals that return on assets is significant. A possible interpretation is that manager's look at return on assets in determining dividend payout ratios. (ii) The relationship between average growth in assets and dividend payout ratio is not significant. However in 1995 the relationship was significant. From the findings the dividend payout ratios, return on assets, return on equity and growth in assets have been decreasing over the period of study which may suggest that managers are not necessarily using retained earnings to generate greater returns for shareholders.