Determinants of dividend payout ratio for profitable non- financial companies listed in nairobi securities exchange; kenya

Author: 
Nguri, James Mwathi and Jagongo, Ambrose Ouma

Every investor in any company aims at maximizing on their investment. This is usually achieved in form of dividends, capital growth or both. Dividend is the proportion of profit that is distributed to the owners of capital funds either in cash or as a bonus shares. The dividend policy determines what proportion or earnings are distributed to shareholders as dividend and the proportion to be ploughed back. Over decades, there have been controversial issues on dividend policy and no universally acceptable explanation on dividend policy has been reached. Many studies done identified profitability and liquidity among the key determinants of dividends payouts decisions for companies listed in Nairobi Securities Exchange (NSE). The objective of this study was to examine determinants of dividend payout ratio (DPR) among the profitable non financial companies in NSE. Twenty profitable non financial companies that were in operation from 2001 to 2010 were selected using purposive sampling. Secondary data of these companies was obtained from NSE, and firm websites. The relationship between the dividend payout ratio and independent factors; size of the firm, business risk, leverage, growth opportunities, tax and earnings were determined. Multiple regression models were used to determine if there exist a significant relationship between the dependent and independent variables. The regression model indicated that leverage, growth, and size of the firm are the major determinants of Dividend payout ratio. The result also identified that leverage and growth have a negative impact on DPR while earnings have a positive impact.

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