DIVIDEND PAYOUT STRATEGIES AND FINANCIAL PERFORMANCE NEXUS: A PANEL STUDY OF QUOTED DEPOSIT MONEY BANKS IN NIGERIA

Abstract

The dividend policy of the deposit money banks in Nigeria has been a subject of scrutiny in financial literature. The regulatory provisions often conflict with economic consideration and the expectations of the shareholders. The restrictions of banks with high non-performing loans from paying dividend negates the expectations of the shareholders to employ regular dividends as a hedge against inflation and a weakened national currency. This research examines the influence of dividend policy of ten Nigerian Deposit Money Banks, selected based on their significant market presence and representation of the broader banking sector and their financial performance. It employs data from the banks’ annual reports, the Nigerian Exchange Group and the National Bureau of Statistics and utilised random effects to estimate the influence of dividend strategies  on financial performance. Findings indicate that dividend payout ratio exerts a significant negative influence on earnings per share, suggesting that higher payout ratios are associated with lower financial performance. Conversely, the relationship between dividend yield and earnings per share is weak but significantly positive, indicating that higher dividend yield is limited in improving financial performance. However, dividend per share has no significant impact on earnings per share. Additionally, the impact of firm size on earnings per share is negative and significant, which depict inefficiencies in  the operations of larger banks. The study recommends that banks should focuse on maintaining a moderate payout ratio to maintain adequate funds for reinvestment. Further, larger banks should strive to achieve operational efficiency by  optimizing the processes and procedures as well as strategic resource allocation to enhance profitability.