Dividends Policy and Common Stock Prices

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ABSTRACT
The issue of how much a company should pay its stockholders, as dividend is one that has been of concern to managers for a long time. The optimal dividend policy of a firm may be defined as the one that increases shareholders wealth by the greatest amount. It is therefore necessary, to understand the nature of the relationship between dividend and value of the firm. It is in the light of this that the study examines the possible effects of a firm’s dividend policy on the market price of its common stock with reference to the Nigerian context, using Nestle Nigeria Plc. as case study. In so doing, the methodology adopted include the use of ex post facto research techniques to acquire data and the use of co-relational research techniques, which featured the simple regression analysis used to establish the nature of any relationship existing between the two variables. The methodology also featured the use of Person’s Product Moment Correlation to test the significance of any empirically derived relationship between the variables based on the data that collected on the company in focus. The analysis led to the rejection of the null hypotheses and formulation of conclusion that dividend policy has an inverse relationship with common stock prices in the Nigerian stock market. It was, therefore, recommended that Nigerian firms should take the advantage of rising earnings and keep the level of dividends at a fixed amount which would mean a reduction in the proportion of earnings that is distributed as profit though the face value of the dividends may be fixed. The analysis also showed a high significance in the relationship between dividend policy and common stock prices in the Nigerian stock market. As such, it was also recommended Nigerian firms should consider all the other factors that affect stock prices before formulating a dividend policy, in order to have an optimal policy that satisfies its shareholders and other interested third party.  

TABLE OF CONTENTS
TITLE PAGEi
DECLARATIONii
CERTIFICATIONiii
DEDICATIONiv
ACKNOWLEDGEMENTv
ABSTRACTvii
TABLE OF CONTENTSviii
CHAPTER ONE – INTRODUCTION1
1.1BACKGROUND OF THE STUDY1
1.2STATEMENT OF THE PROBLEM5
1.3OBJECTIVES OF THE STUDY6
1.4RESEARCH QUESTIONS7
1.5STATEMENT OF HYPOTHESIS7
1.6SIGNIFICANCE OF THE STUDY8
1.7SCOPE OF THE STUDY9
1.8DEFINITION OF TERMS9
CHAPTER TWO – LITERATURE REVIEW11
2.1INTRODUCTION11
2.2CONCEPTUAL FRAMEWORK11
2.3REVIEW OF THE LITERATURE30
2.4THEORETICAL FRAMEWORK40
2.5THE NIGERIAN SCENARIO56
2.6CORPORATE PROFILE OF NESTLE NIGERIA PLC.60
2.7SUMMARY OF THE CHAPTER62

CHAPTER THREE – RESEARCH METHODOLOGY64
3.1INTRODUCTION64
3.2RESEARCH DESIGN65
3.4POPULATION AND SAMPLE OF THE STUDY66
3.5METHODS OF DATA COLLECTION68
3.6TECHNIQUES OF DATA ANALYSIS70
3.7JUSTIFICATION OF METHODS AND TECHNIQUES USED72
3.8SUMMARY OF THE CHAPTER72
CHAPTER FOUR- DATA PRESENTATION ANALYSIS74
4.1INTRODUCTION74
4.2PRESENTATION OF DATA COLLECTED74
4.3INTERPRETATION OF DATA76
4.4ANALYSIS OF DATA78
4.5TEST OF HYPOTHESIS80
4.6DISCUSSION OF FINDINGS82

CHAPTER FIVE – SUMMARY, CONCLUSION AND RECOMMENDATION85
5.1SUMMARY85
5.3CONCLUSION86
5.4RECOMMENDATION88

BIBLIOGRAPHY90

CHAPTER ONE – INTRODUCTION
1.1BACKGROUND OF THE STUDY
The essence of investing is the earnings expected either in the form of appreciation in value of the assets involved or from the returns created by the use of the assets involved. These returns could be in the form of share of profits (dividends) or interest to be received for the usage of money lent. These expectations are what drive all other investment objectives. Investors who invest in stocks are highly expectant of dividends or capital gains. However, every publicly traded company has to decide whether to return cash to its stockholders at the end of each year, and, if yes, how much in form of dividends. This is the dividend...
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