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Dividend policy refers to management’s long-term decision on how to deploy cash flows from business activities-that is, how much to invest in the business, and how much to return to shareholders. The determination of the amount of dividends payable is an important decision that companies undertake since the objective of the firm is to maximize the shareholders’ wealth as measured by the price of the company’s common stock. The study concluded that higher pre-tax risk adjusted returns associated with higher dividend yield stocks to compensate investors for the tax

disadvantages of returns affected tax incentives and that investors whose portfolios had low systematic risk

preferred high-pay-out stocks. This was consistent with Brennan’s model (Brennan, 1970).The study also found out

that an increase in firms’ stocks trading volume affected the share price and investors who wanted current

investment income owned shares in high dividend payout firms and this was consistent with the findings of Botha (1985). The study further concludes that free cash flow caused conflict between management and shareholders which in turn affected the share price and that the executive option plan persuaded management to reduce corporate dividends by an amount that was equal to the option plan. This was consistence with the findings of Lambert, Lanen and Larker (1989). The study recommends that companies consider all pertinent issues before issuing dividends. Since the share market is positively responsive to the dividend announcement, companies should always strive to pay divided consistently for their shares to perform well at the stock exchange. Dividend policy have an effect on the share prices of the firms quoted at NSE thus, companies (firms) should pay dividends to maintain high share prices














1 Introduction

1.2     Statement of The Problem

1.3 Objective of The Study

1.4 Research Question

1.5 Research Hypothesis

1.6 Significance of the Study

1.7 Scope of the Study

1.8 Definition of Terms


Literature Review

2.1 Introduction

2.2 Conceptual Review

2.3 Theoretical Review

2.3.1 Gordon’s Growth Valuation Model Theory:2.3.2 Graham, Dodd and Cottle Theory 1962.

2.4 Empirical Review


3.0 Methodology

3.1 Introduction

3.2 Research Design

3.3 Population of this Study

3.4 Sample and Sampling Procedure

3.5 Data Collection and Processing Procedure

3.6 Research Hypothesis

3.7 Statistical Technique


Data Presentation, Analysis and Interpretation

4.1     Introduction

4.2     Analysis and Interpretation of Findings

4.3     Test of Hypothesis


Summary, Conclusion, and recommendations

5.1     Summary

5.2     Conclusion

5.3     Recommendations











The importance of dividend policy in business world cannot be over emphasized. A number of stakeholders, including investor, managers, lender, financial consultant/ analysts etc. use It in making informed decision. Considering the importance of dividend policy from the investor” point of view dividend is not only a source of income but also a way of assess company from investment point of view. In other words, their main objectives of investors in the stock market is to maximize the expected return at low level of risk and this return may be in the form of dividends or capital gain in effect, maximizing shareholders wealth depends on the dividend policy of the company because of these shareholders would satisfy their purchasing and consumption pattern (Khan 2012).

In companies perspective selecting a suitable dividend policy is an important decision for the company because flexibility to invest in future projects depends on the amount of dividends that they pay to their shareholders. As such, certain important factors like managerial and behavioral environment, firms profitability ratio, the willingness of the company etc. are considered to the companies in designing their dividend policies (Khan 2012) Ling, Matalip, Sharin and Ethman (2008) studies the characteristic of dividend paying companies of Malaysia and found out that dividend paying companies are more profitable, less risky and more mature in their activities or as compared to non-dividend paying companies. Their results also indicate that manager of Nigeria companies understand the important of paying dividend and they pay dividend even if the companies are not earning profits.

Dividend policy which involves, itself in determining the amount to be paid to the shareholders and that to be retained in the company for future reinvestment in profitable projects or for other Justifiable needs is one of the cardinal issues involved in financial management and as such as it has consistently received serious attention of researcher even in the recent time (Chidi Agu and Ade, 2013, Altroudi and Michemi, 2013, Ramadan 2013; Zakaria, Muhammed and Zulkifi, 2012, Salisu 2012. In spite of ever increasing focus on the dividend policy issue by several authors/ researcher, there has never been universally accepted conclusion as the empirical analyses have always brought mixed result black (1976) expresses a view concerning dividend policy that “ the harder we look at the dividend picture the more it seems like a puzzle with piece that don’t fit together” this was corroborated by Brealy and Myers(2005) who describe dividend policy as one of the top ten most difficult unsolved problems in financial economics.

One major area of conflict is whether or not dividend policy influence the market price of firm” share and by extension, the shareholder wealth in this connection two main school of thought subsist; the first represents the view of some researcher that dividend policy impact on companies share price(Salih,2010 Petto, 1972, Gordon 1963 etc. and the second being the view of those who claim that dividend policy bears no relevance in the corporate market value (Fairecly, Baker and Edelman 1986, Baker, Farrely and Edelman 1985 , Miller and Modiglan, 1961 etc) and so every research focusing on the relationship between dividend policy and stock price is an attempt to confirm or disprove the above hypothesis.

In Nigeria, drastic development were experienced in the era of indigenization an in the storm of global crisis that hit the nation’s economy, which brought down the market value of the equity shares of listed companies the experience came to fore in most emerging economies of the world, anyway, following the two events, firms in Nigeria had continued had to ought survival ad maximize share price return, the situation which seemed to have called the attention to the issue of dividend policy as it affect sharing pricing yet, there hasn’t been consensus of researcher finding (Adefila, Oladipo and Adeoti 2013, Adaramola 2012, Uwuigbe, Olowe and Godswill 2012, ETC.

This project this intents to examine the patter of dividend policies in Nigeria, assess the impact dividend policy on Nigeria stock exchange (NSE) listed companies” share market value and determine the extent of the impact if any the dividend has on the stock price.


Corporate organization companies inclusive are faced with problem of whether to pay large small or zero percentage of their earning as dividend vis a vis financing future investment projects.

This problem is borne out of the desire to satisfy the various needs of shareholders, some shareholder have the need for income now and as suc will prefer capital gain. due to the fact or having to deal with competing interest of various shareholders the kind of dividend policy the bank adopt could either lead to positive or negative effect on the share prices of the company. The managers are therefore unable to forecast with certainty to what extent the policy will affect the share price of the firms.



The general objective of this study was to examine the impact of dividend policy on share price valuation in Nigerian companies specifically this study sought to:

  • Ascertain if there is any significance relationship between dividend yield and share price of Nigeria companies.
  • Determine the impact of retained earnings ratio on the share price of Nigeria companies


Based on the objective of this study the following research questions guided the study:

  • What is the relationship between dividend yield and companies share price?
  • What is the impact of retained earning ration on the share price of Nigerian Companies?


In order to provide a framework for evaluating the impact of dividend policy on share price valuation of Nigerian Companies, the following hypotheses were formulated in null form.

Ho: there is no significant relationship between dividend yield and share price of companies in Nigeria.

Ho2: there is significant relationship between dividend yield and share price of companies in Nigeria.


The study is beneficial to may groups. It is important to note that the study provides an avenue for an in depth understanding of the topics by students, financial managers, board of directors and other decision makers in formulating optimum polices for their respective companies. The study also forms as a tool for assisting investors in making their investment decision as well as aiding to expose the various factors that may influence stock prices. The study further serves as research materials for future investors and also adds to the existing body of knowledge.


The scope of this study spanned a period from 2000-2004 having 5 years for the scope of this study. the study also focused on 5 Nigerian Companies. In an attempt to empirically analyses the effect of dividend policy on share price valuation. This scope was expected to give an accurate analysis and findings on the subject matter.


The following terms are operationally defined:

  1. Dividend: this is defined as that portion of a company’s net earnings that accrues to shareholders as a result of the money invested in acquiring the stock of a given company. It is usually expressed as a percentage of nominal value of the company’s ordinary share capital or as a fixed amount per share.
  2. Dividend policy: This is concerned with the division of net profit after taxes between payments to shareholders (Ordinary shareholders and retention for reinvestment on behalf of the shareholders. It is thus the tradeoff between retained earnings on one hand and paying out cash on the other hand.
  3. Dividend per share: this is the earning distributed to ordinary shareholders dividend by the number of ordinary share, outstanding.
  4. Earnings per share: this is the ration showing the net profit per issued share or per shared entitled to a dividend.
  5. Dividend yield: this ration indicates the earning (in form of dividend) on investment share. It is also called the dividend price ratio as it calculated by dividing dividend per share by the price per share.
  6. Retention ratio: this is the ratio that shows the percentage of earning held back and not paid out as dividend. It is the opposite of dividend payout ratio.



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