Effect of Dividend Payout Ratio on the Share Price of Manufacturing and Allied Companies Listed at Nairobi Securities Exchange

Abstract

Dividends are regarded as a critical success factor for many business entities since they are able to signal the projected performance. The declaration and the payment of the dividends by the business entities is enough proof the business entities are worthy to invest in since it is a sign of good performance by the companies. Therefore, this study attempts to determine the effects of dividend payout ratio on share prices for the manufacturing and allied firms enlisted in the NSE of Kenya. This study employed secondary data obtained from the NSE. Particularly, collected data included annual change in share prices, total assets, current assets, current liabilities, total debt and dividend. A census study was adopted and all 8 companies were analyzed for a period of 5 years from 2013 to 2017. The independent variables analyzed here included working capital, payout ratio, leverage and firm size while the dependent variable was share price. Descriptive statistics, correlation analysis, regression analysis and Analysis of variance (ANOVA) were carried out to determine the strength of the model and effect of dividend payout ratio on the share prices. F- test at 5% significance level was employed to assess the significance of the regression whilst the coefficient of determination, within and between R2, were employed to establish the variation in dependent factor as explained by independent factors. The p-value from analysis was 0.015. The study established that a strong relationship exist amongst dividend payout ratio with price of share for the manufacturing and allied firms enlisted at the NSE of Kenya. This study recommends the adoption of appropriate dividend policy since it directly affects the share prices. It is believed that dividend payout ratio determines the survival and the profitably of the companies since it positively or negatively affect the share prices.