Determinants of Dividend Payout of Financial Institutions in Nigeria: A Study of Selected Commercial Banks

Abstract

The study examined the various determinants of dividend payout of selected Commercial Banks in Nigeria. Secondary data collected from 1989-2010 were analyzed using the Ordinary Least Squares (OLS) regression technique. The findings revealed that while current earnings, lagged dividend and lending rate were the major determinants of cash dividend payout in these banks, Inflation rate and liquidity ratio failed to explain the variation in dividend payout. Also, these banks had a lower Average Marginal Propensity (AMP) to pay out of current earnings of 30.67%.This implied a profit retention of 69.33% during the period, indicating the conservative nature of management of these banks. The paper recommended that if informed Nigerians are to be encouraged to buy more shares in the banking sector, management of such banks should strive to reduce their retained earnings. This is necessary due to the axiom of time value of money. Since money invested in shares is part of individual investments, shareholders should have maximum return on their investment, such as dividend.

Key words:  Commercial banks, Dividend Payout,   Determinants, Nigeria.