The Level Of Corporate Dividend Payout To Stockholders: Does Optimal Dividend Policy Exist For Firms Quoted At The Nairobi Stock Exchange?

Abstract

The objective of this study was to determine the level of corporate dividend payout to stockholders and establish if the optimal dividend policy exists for the firms quoted at the Nairobi Stock Exchange (NSE).  An analysis was done for the all the 43 firms trading in the main investment market at the Nairobi Stock Exchange.  Secondary data was obtained from the Nairobi Stock Exchange library, Internet & company libraries. Companies that were quoted at the stock exchange for a period of thirteen years and paid and/or did not pay dividends during that period were sampled. According to the findings of this study, the aggregate dividend payout ratio for the Kenyan market was obtained to be 44.14% for the period between 1991- 2003. The findings of this research suggest that the average corporate dividend payout to stockholders for 40% of the firms is low and stable and that 28% of the firms quoted paid out high and stable dividends. It was also observed that most of the firms that paid high and stable dividends are the blue chip firms, which are the main movers of trading at the NSE. The dividend model provides a summary of the factors that influenced and continue to influence the dividend decisions for this market including and not limited to the tax systems, clientele preferences, signaling, sustainability, low liquidity, high growth, ownership control and dividends as residual etc. From the model it is possible to predict the likely dividend decisions of the firms in future.