Dividend payouts and Price earnings: What relationship exists for First Bank of Nigeria Holdings Plc?

Abstract

There is an interest among shareholders to receive dividend pay-outs when earnings are declared by companies whose shares they hold. Management of the companies, on the other hand, desire to have some of the earnings retained for future investment opportunities. The financial managers play a crucial role in helping the companies frame their dividend policy to suit the needs of the company and shareholders alike. Low dividend payments have left shareholders feeling dissatisfied most of the times. The firms on the other hand have been faced with harsh business environment impacting on their returns. Maintaining a balance between the pay-out and retention has become a subject of discourse in financial circles. This study is concerned with determining the relationship that exists between the dividend pay-outs and price earnings of First Bank of Nigeria Holdings Plc. The study answered the question: what is the relationship between dividend pay-outs and price earnings ratio? The null hypothesis was tested at 0.05 level of significance. Ex-post facto design was adopted for the study. The secondary data were obtained from audited accounts of First Bank of Nigeria Holdings Plc and analysed using Pearson product-moment correlation. It was found that there is a weak negative relationship between dividend pay-out and price earnings ratio. This relationship was however not statistically significant. It was recommended among others, to ensure a robust dividend policy that maintains a balance between dividend pay-outs and earnings retention.