Dividend Policy and Share Price Valuation: A Study of Union Bank of Nigeria Plc.
ABSTRACT
This study investigated the impact of dividend policy on share price valuation in Nigerian banks. This was done by utilizing data on Union Bank of Nigeria Plc, operating in the Nigerian economy. The data used for this study were market price, dividend yield and retention ratio.
Market price was the dependent variable while dividend yield and retention ratio were included in the independent variables.
In order to accomplish the set out objectives of this study, two research hypotheses (Ho1 – Ho2) were formulated which were tested via a number of analytical techniques.
These were the ADF Unit Root Test and the ordinary least squares test. These tests were carried out with the aid of e-views software package.
Based on the results obtained, the null forms of both hypotheses were rejected while the alternate forms were accepted.
The results revealed that dividend yield had a significantly positive effect on share price while retention ratio was found to have a significantly negative effect on it.
The study recommended that since dividend pay-out has a direct relationship with the firm share price; the financial manager should keep mortifying dividend policy until the share price is optimized
TABLE OF CONTENTS
Title Page………i
Declaration……….ii
Certification ………..iii
Dedication…..iv
Acknowledgements………..v
Abstract ……….vi
Table of Contents……..vii
CHAPTER ONE: INTRODUCTION
1.1 Introduction………………….1
1.2 Background to the study……….2
1.3 Statement of the problem……….5
1.4 Objectives of the study………6
1.5 Research questions………..6
1.6 Statement of the hypotheses…………7
1.7 Significance of the study……7
1.8 Scope of the study…………..8
1.9 Definitions of terms …..8
CHAPTER TWO: LITERATURE REVIEW
2.0 Introduction………10
2.1 Conceptual frame work………10
2.2 Theoretical frame work…….…14
2.3 Literature on subject matter……..18
CHAPTER THREE: METHODOLOGY
3.0 Introduction……..33
3.1 Area of study…………….33
3.2 Research design and sources of data………33
3.3 Study population and sample size…………34
3.4 Instrumentation…….34
3.5 Procedure for data collection and data analysis………35
3.6 Limitations of the study……36
CHAPTER FOUR: DATA ANALYSIS FINDINGS AND DISCUSSION
4.0 Introduction……37
4.1 Data presentation…….37
4.2 Analysis of data……..39
4.3 Test of Hypothesis………47
4.4 Discussion of the findings….52
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.0 Summary of findings…….54
5.1 Conclusion..……….54
5.2 Recommendations.…..55
References……………57
Appendix…….60
INTRODUCTION
Dividends are per-share payments designated by company’s board of directors to be distributed among shareholders. For preferred shares, it is generally a fixed amount. For common shares, the dividend varies with the fortunes of the company and the amount of cash on hand.
It may be omitted if the business is poor or the directors withhold earnings to invest in plant and equipment Garver (2012). Since most closely held companies do not pay dividends, when using dividend capitalization valuators must first determine dividend paying capacity of a business.
Dividend paying capacity based on average net income and on average cash flow is used Husseman (2012). Dividend policy is a major financing decision that involves with the payment to shareholders in return of their investments.
Every firm operating in a given industry follows some sort of dividend payment pattern or dividend policy and obviously it is a financial indicator of the firm. Thus, demand of the firm’s share should to some extent, dependent on the firm’s dividend policy.
Gitman (2014) Dividend policy is one of the most widely researched topics in the field of finance but the question is whether dividend policy affects stock prices still remain debatable among managers, policy makers and researchers for many years. Rose (2015) pointed out that dividend policy is important for investors, managers, lenders and for other stakeholders.
It is important for investors because investors consider dividends not only the source of income but also a way to assess the firms from investment points of view.
It is the way of assessing whether the company could generate cash or not. Many investors like to watch the dividend yield, which is calculated as the annual dividend income per share divided by the current share price.
According to Kiosel(2014) the dividend yield measures the amount of income received in proportion to the share price.
REFERENCES
Adelegan, O. J. (2003). An Empirical Analysis of the Relationship between Dividend Changes and Cash flow in Nigeria.
Aguolu P.S.O (1979) Financial management listed Date word publication Oko
Annual reports and accounts Union Bank Nig. Plc. 2002.
Besley, S. & Brigham, E.F. (2008), Essentials of managerial finance, The Dryden Press, Orlando.
Calitus, W.W (2013). Determinants of Dividend Payout by Agricultural Firms Listed at the Nairobi Securities Exchange
Chowdhury, T. A & Ahmed, K. (2009). Performance evaluation of selected private commercial banks in Bangladesh: International Journal of Business and Management
Cochran, W.G. (1977): Sampling Technique 3rd Edition. John Wiley & Son Publication.
Dong, M. Robinson, C. & Veld, C. (2005), Why Individual Investors Want Dividends: Journal of Corporate Finance,
Ebrahimi, M. & Chadegani, A.A. (2011), The Relationship between Earning, Dividend, Stock
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