Effect of Dividend Policy on Stock Prices for Firms Listed at the Nairobi Securities Exchange

Abstract

The effect of dividends on share prices or valuation of firms is one of the most important topics in finance. It is in this light that the study examines the possible effects of dividends on the market price of common stocks for firms listed at the Nairobi Securities Exchange. The expected relationship is that a stable dividend policy will increase share prices and vice versa. The study uses a descriptive research design from a census survey of the 61 listed firms at the NSE in the ten years between 2004 and 2013. The study used secondary data available for all firms at the NSE. The regression model used in the study has the share price as a function of dividends, profitability and leverage. The study found a strong positive relationship between dividend per share and the share prices and that share prices are affected by the dividends per share paid out. The study concludes that there’s a strong positive relationship between stock prices and dividends for firms listed at the NSE.