DIVIDEND POLICIES
(A
CASE STUDY OF SOME QUOTED COMPANIES LISTED IN NIGERIA STOCK EXCHANGING)
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Dividend policies decision is concerned
with the determination of the corporate earnings that is generated through the
successful operation of the company in a financial year, which is to distribute
among the key players that ensure the realization of the successful outcome of
he operation of the organization and the amount of the proportion of this
earnings to be retained.
Dividend
earnings decision policy is widely considered in the business world as strategic in corporate
finance as well as corporate
performance and growth. Dividend policy directly influences the behavioural
pattern of the investor ie. Shareholders.
Because the purchaser of the company i.e shareholder actually buys a
dividend expectation; because of the dividend policy decision implication on
the behavioural pattern of the shareholder be it positive or negative the
corporate world impose the responsibility of this great task of he board room
affairs.
Dividend
policy decision as a tool in the strategic corporate finance as well corporate
performance and growth affect the share price as well as cost of capital. In other words on option dividend policy is
the policy that maximizes the wealth of shareholder.
Due
to obvious reasons shareholders consider impotence to dividend. The importance
that the individual shareholder places on dividends depends on his level of
wealth and preference for capital gains amongst others. In an environment with
progressive personnel income taxes the individual with more wealth will tend to
profess capital appreciation on shares then dividend. At a lower level of
income the capital gain tax rate is higher then the personal income tax rates
however the reverse is the case with increased income. The wealthy individual
among the diverse shareholders may then prefer capital appreciation on his
share due to the at mentioned reasons.
Though
the bulk of he shareholder nay not be in this category the company is then
placed in a situation of reconciling the difference or taking the potion that
seems more favovrable to the company.
This is ht some things as saying that the management of the company will
take the option that optimizes the value of he company’s shares.
It
is often claimed that the company’s investment decisions and dividend decision
are independent of the shareholder’s decision.
It should be noted that this might not be entirely true some there is
replay procedures that protected the aggrieved shareholders.
Beside
these the shareholders might exercises their right through the selling of their
shares on the stock exchange and this has negative consequences on the value of
the company’s share in the market which in turn affect the fortune of he
company.
The
primary aim of this research work is to find out whether the in dividend pays
out stimulates responses on shares value.
It is believes in some garters that the dividend pay out has something
to do with value of shares yet some people stated otherwise. Dividend in this content means the amount
distributed to shareholders of a company by way of return investment that are
not so interested in the measure of soundless of he company. This issue is even more pronounced when
criticism that are normally levied against accounting measure of profitability
are mentioned.
There
are many criticisms regarding the measure of profitability in the accounting
sense. E.g. profit measurement by
accountant depends on the assumption and policies used. Hence the ability of he company to pay
dividend can be stated to measure the sounded and profitability of a
company.
1.2
STATEMENT OF PROBLEM
Though dividend policies decision is
guided by legal framework as prescription in the company and allied matters
decree (CAMD) of 1990 as to what
constitute dividend in the corporate rate earning and the method in which the
dividend policies decision can be taken.
Although
there are many constraints inherent in
dividend policies research work reveals other factors to be considered in order
to determine and study will only concern on two opposing view or argument
associated with dividends policy decision.
These
arguments can be highlighted as thus:
i. IRRELEVANT ARGUMENT/ SCHOOL OF
THOUGHT
This posted that given the investment decision of the firm
the dividend pay out is a merely details that dividends policies does not
affect the wealth of the shareholders that is it is of need.
ii. RELEVANT ARGUMENT
Posited that high tax payer prefer low dividend yield while
institutional investor who do not pay tax prefer high yield or profit
1.3
OBJECTIVE OF THE STUDY
The objective of he study
include the following:
i.
To analyze the basic models of
share valuation with a view to answering such question as what are their
simikritics and difference what is the extent to which dividend payout affect
the value of shares of source listed companies etc.
ii.
To determine whether Education
in dividend have anything to do with the value of shares.
iii.
To show whether any of the
shares valuation models cannot with reality
1.4
STATEMENT OF THE HYPOTHESIS
An hypotheses is a statement of fact to
study put forward by a researcher as a starting point for reasoning to guide
him in human research work which may be true or false valid or otherwise if he
data collected by the research indicated that majority support the fact that is
valid it is therefore accepted otherwise it is not and hence rejected for the
purpose of this research of study the major hypothesis considered are.
H0: Fluctuation
in dividend payout by some listed companies has effect on the value of
shares.
H1: Fluctuation
in dividend payout by some listed companies has no effect on the value of
shares.
1.5
SIGNIFICANCE OF THE STUDY
The research work is intended to be of
food use to anybody involved in the process of dividend payments and
receipt. For example companies
management and investor. The study by
analyzing some dividend share valuation models intention show the logic behind
these modems.
There
is no doubt that some shareholders will be expecting high dividend some might
be different and source even prefer no dividend situation. In fact some attend
annual (general) meeting (ACM) in other to know the actual dividend declare for
the year.
However
it is beneficial to the companies in the policy making such as follows.
i.
It enhance the image the organization
e.g financial soundness
ii.
It will attract investors
iii.
Increase market shores prices
iv.
Room for expansion
v.
It increase and enabling the
sources for fund in the capital market.
The
study will be reference sources to future researchers
1.6
SCOPE OF THE STUDY
As a result of the fact that the
possibility of obtaining internal information is very remote data analysis will
be restricted to facts obtained from listed company’s published financial
statement and stock exchange daily official lists.
The
study looks at the patterns of some shares before dividends are declared and
the behaviour of such shares to the public and investors as a whole. This is with a view to identifying whether
shores prices respond to dividend declaration and payout.
The
day in which dividend are approved for payment by the shareholders at the
annual general meeting is assumed to be the day that such dividends are
declared and the day when dividend warrants are posted to respective
shareholder is regarded as the payout day.
1.7
LIMITATION OF STUDY
This study will concern itself with
situation in the stock market as they relate to the year 1998 1999 2001, 2002.
The
research work will limit itself to only principles of dividends terms and
abbreviations as they effect the scope of shoes value.
1.8
DEFINITION OF TERM
i.
E.P.S (earning per shore) this
is the profit after tax of a company dividend by the number of shores in issued
and ranking for dividend.
ii.
Profit after tax: That is number of shores in issued and
ranking for dividend
iii.
Price earning ratio: It shows the ratio of earning to the market
value of shores.
iv.
Interim dividend: This is a dividend a company prior the
end of its financial year.
v.
Pay out ratio: This is the proportion of total earning
(after tax) that is distributed as dividends.
vi.
Mm: Modigiliani
and Miller: There are two professors of finance who made extensive research on
dividend policy and capital structure.