Dividend Payout, Company Size and Financial Performance of Selected Companies Listed on Nairobi Securities Exchange, Kenya

Thesis Title: Dividend Payout, Company Size and Financial Performance of Selected Companies Listed on Nairobi Securities Exchange, Kenya

Student’s Name: Philip Ojiambo Oundo

Supervisors’ Names:

1.Dr. Fred Gichana Atandi

2.Dr. Brian Wanyama Singoro

Abstract:

Financial performance, which reflects a company’s ability to generate revenue and manage resources efficiently has seen a marked decline among NSE-listed companies between 2016 and 2020.This trend reflects broader financial instability in regions like Southern Africa and Nigeria. The relationship between dividend payouts and financial performance has become a key area of interest, with researchers debating whether dividends positively impact company performance. While studies from Kenya suggest a positive link between dividends and performance for NSE-listed firms, global findings remain mixed. The purpose of this study was to investigate the effect of dividend payout on financial performance of selected companies listed at the NSE, Kenya. The study was guided by the following specific objectives: Establish the effect of dividend payout rate on financial performance, determine the effect of dividend per share on financial performance, establish the effect of dividend yield on financial performance and determine the moderating effect of company size on the relationship between dividend payout and financial performance of selected companies listed on Nairobi Securities Exchange. The study was guided by three theories the bird in hand being the major theory and other theories like dividend irrelevance theory and stewardship theory. The study used longitudinal research design targeting 60 companies listed at NSE as at December 2020.Using the Yamane Taro formula, a sample of 52 companies was selected through simple random sampling. Secondary data was collected from annual reports of the companies over five-year period from 2016 to 2020. The data was analysed using descriptive and inferential statistical methods, including multiple regression analysis. The findings revealed a general decline in ROA over the five years, indicating a downward trend in financial performance among the selected companies. Despite this, the dividend payout rate remained relatively stable, while DPS varied moderately and dividend yield showed a rising trend. Regression analysis revealed a strong positive significant relationship between dividend payout measures (dividend payout rate, DPS, and dividend yield) and ROA. Additionally, company size was found to significantly moderate the relationship between dividend payouts and financial performance, with larger companies experiencing a stronger positive impact. In conclusion, dividend payout positively influences financial performance among NSE-listed companies, with company size playing a crucial moderating role. These findings underscore the importance of strategic dividend policies and suggest that larger companies benefit more from consistent or increasing dividend payouts. The research recommends that boards and managers develop dividend policies aligned with long-term financial goals, as dividend payouts positively correlate with financial performance. Investors should assess a company’s dividend payout rate, Dividend per Share (DPS), and dividend yield, while also considering company size, as larger firms tend to have a stronger link between dividends and performance. Regulatory bodies are encouraged to enforce transparent disclosures of dividend policies for informed investment decisions. Future research should explore the role of firm size, the impact of macroeconomic factors, and sector-specific effects on dividends. Additionally, extending the study period and comparing emerging and developed markets could provide further insights into the long-term and contextual impacts of dividend policies.