CHAPTER ONE 1.0   INTRODUCTION

The issue of dividend policy is very importantin the current business environment. Dividend policy remains one of the most important financial policies not only from the view point of the company but also from that of the shareholders, the consumers, employees, regulatory bodies and the government. For a company, it is pivotal policy around which other financial policies rotate (Alii et al, 1993). Dividend or profit allocation decision is one of the four decision area in finance.

1.2   BACKGROUND OF THE STUDY

Dividend decisions are important because they determine what funds are retained by the firm for investment (Ross et al. 2002) more so, they provide information to stakeholders concerning the company’s performance firm investments determine future earning and future potential dividend, and influence the cost of capital (Foong et al, 2007).

The survival of any company is dependent on the continuous investment in facilities and the employment of internal financing. Through the use of retained earnings from an integral part of the sources of finance to foot the investment need, (Bajas & Vijh 1990, Osaze and Anao, 1990).

Government fiscal policies tend, to put some restrictions on the amount of dividend a company may pay this invariably has forced part of the realized profits to be ploughed back.

This way very obvious during the indigenization exercise of the seventies. The restriction is further strengthened by section 379(2) of the company and allied matters act (CAMA) 1990, which provides that the general meeting shall have power to decrease the amount recommended one of the reason behind the dividend decision policy of the Nigeria government is to ensure that funds are available for continuous investment in assets, so that the companies will continues to operate on the going concern principles.

The realization of the laudable goals of entrepreneurial investment in Nigeria has been inhibited by lack of sufficient funds. In facts, the low level of investment capital available to most industrial organizations has accounted for the low capacity utilization.

The manufacturers association of Nigeria recently put this at below 30% (Nigeriabusinessinfo.com). As one of the responses to the agony of capital shortage in the industrial sectors government initiated the deregulation of the capital market.

The excess was to foster a developed capital market. However, irrespective of the various laudable efforts by the government, the Nigerian capital market is still at its emerging state. In the face of this looming shortage predicament, this paper will basically attempt to ascertain whether there is a relationship between the financial performance and dividend payout of listed firm in Nigeria. In addition, basically it seeks to investigate the relationship between the financial performance and dividend payout of listed firms in Nigeria. To achieve this corporate annual reports for the period 2006-2010 were analyzed in addition using the judgment sampling technique. The study considered a total of 50 listed firms in the Nigerian stock exchange market. The choice of these industries arises based on the size, market capitalization and the availability of the report of the sampled firms.

1.3   STATEMENT OF THE PROBLEM

A firm must decide each period whether to retain all its earnings or distribute part of them to shareholders this also depends on whether the firm is optimistic of having acceptable investment opportunities in the future.

If the firm pays a low dividend, there will be high potential earnings for future investment opportunities. If the investment opportunities does not materialize, the dividend would be increased and share price falls, (i.e. shareholders’ value falls) and the shareholders will be disappointed Pandey (1983).

The problem is isolating the dividend increase from investor’s disappointment. This raises the question on the role of dividend policy in firm performance. Dividend policy has presented different issues to academicians and practitioners what should the firm’s dividend policy be? Does dividend policy really matter? These and more would be examine in the course of the study.

1.4   OBJECTIVE OF THE STUDY

The specific objectives of this study are as follows:

1. To examine and asset the efficacy of the dividend policy of Nigerian companies.
2. To investigate the relevance of dividend policy to investors.

iii.    To identify the critical factors that influence dividend policy.

1.5   RESEARCH QUESTION

The research questions which would guide this study are as follows:

1. Has the dividend policy of Nigerian companies be efficiency and effective in terms of firm performance?
2. To what extent is the dividend policy relevant to Nigeria investors?
3. What are the factors that influence dividend policy in a company?

1.6   RESEARCH HYPOTHESIS

H0:  Dividend policy is not a strategic tool for firms’ performance in Rivers State, Nigeria

1.7   SIGNIFICANCE OF THE STUDY

The result of this study would help in answering many questions often raised over dividend policies. The dividend paid often is to a large extent the yardstick to which investor measure the performance of their companies and investment. This dividend is seen as an achieve variable influencing the stock price of a company and consequently the value of the firm. Having also observed the economic environmental in which Nigeria business organization operate a study of this nature is justified by the economic importance attached to corporate dividend policy in a developing country like Nigeria in quest for rapid economic development.

In addition, the work promises to be of immense benefit to portfolio and investment analysis, company’s top management, dealers and operators of the Nigeria stock exchange as well as investors.

1.8   SCOPE OF THE STUDY

This study would focus extensively on the dividend policy of companies and how it affects their wealth maximization objective.

Relevant dividend policy theories ranging from traditional theories to relevancy school shall be highlighted and discussed in detail.

The study would also identify the factors influence dividend policy of companies.

1.9   LIMITATION OF THE STUDY

A major limitation of this study is that it would only focus on company and as such the generalization of the findings of the study may be subjected to certain cautions.

Several other factors that influence that dividend policy of the company would be excluded.

This is due to the focus of the study

1.10 DEFINITION OF TERMS

Dividend Policy:     A dividend policy is a company’s approach to distributing profits back to its owners or stockholders. If a company is in a growth model, it may decide that it will not pay dividends, but rather re-invest its profits (retained earnings) in the business.

Firm:       A business organization such as a corporation limited liability company or partnership. Firms are typically associated with business organization that practice law, but he term can be used for a wide variety or business operation units.

Performance:  The act of performing of doing something successfully or performing arts, general comprises an event in which a performer behaves in a particular way for another group of people.

Empirical: Drawing an experience or derived from observation or experiment and relying on.

Review:   The process of studying or examining a situation policy, or idea again in order to decide whether it is suitable or satisfactory.

Selected: Carefully choose as being the best or most suitable.