Effect of Dividend Payout Ratios on Market Share Prices of Companies Listed in Nairobi Securities Exchange

Firms quoted on the NSE usually declare their dividends and shareholders on the firm’s share register as at a given cut-off date. The shareholders declared, become eligible to receive a dividend once it is paid out. Once a dividend is declared, the stock prices commence trading cum-dividend until the dividend payment is made to shareholders. This study sought to investigate the effect of share market prices to dividend payout ratio. The study was guided by signaling theory, a descriptive research design was adopted and secondary data was utilized. The target population was 59 Nairobi Securities Exchange firms. A sample size of 30 firms was selected. Data analyzed using regression model. The linear regression model, indicated an R squared of .537 showing that 53.7% of the variation in market share prices can be explained by dividend payout ratio. Dividend payout ratio had positive influence on market share prices (β=0.851 and p <0.05). The study concluded that the dividend payout ratio affects the market share prices of a firm significantly in the long run. Depending on the investors composition in the company’s shareholding the firm should investigate and develop the dividend policies which will be in favor of both the shareholders interested in capital gains or dividend yield. The businesses should aim to ensure that their policies on dividends are aimed at raising the share price of the company and at protecting shareholder interests.