The Relationship between Profits and Dividend Payout of Commercial Banks in Kenya

Abstract

This study analyzed the relationship between profits and dividend payout of commercial banks in Kenya. The research was based on the ten commercial banks consistently listed at the NSE for the five-year period from 2008 to 2012 inclusive.  Simple and multiple linear regressions were used to determine the relationship between dividend payout and profits. The key finding of the study is that there is a strong positive relationship between profits and dividend payout. This study is consistent with empirical findings of Abdi (2010) who found that dividend payout positively correlate with future profits of companies though the relationship is low.

Keywords: Profits, Dividend Payout, Dividend Irrelevance Theory, Dividend Preference Theory, Tax Effect Theory, Clientele Effect Theory, Information Content Theory and the Agency Cost and Free Cash Flow Hypothesis.