Investigating the Effects of Dividends Pay-out on Stock Prices and Traded Equity Volumes of BSE Listed Firms

Abstract

The main objective of this study is to examine the effect of dividend pay-out on the prices of stock in Botswana’s equity market as well as the effect of traded volumes of such stocks. Other objectives of the research are to determine the optimal pay-out ratio based on the profits of the firm and to determine the optimal time to declare and pay dividends. We use quota-sampling technique and selected 5 companies from the 22 domestic listed companies in the Botswana Stock Exchange. The companies under consideration are Barclay Bank, RDCP, Chobe, Engen and Sefalana Plcs. These companies are chosen based on the availability of daily closing trading information for the past five years and easiness to get information to use for our study that includes dividends pay-outs, profits made, volumes traded, etc. The result of this study reveals that there is a direct relationship between dividend announcement, ex-dividends, dividend pay-out ratio and volume of stock traded and the stock price in Botswana. Furthermore, the study concludes that there is a direct relationship between change in dividends and change in dividend per share. Lastly, the finding reveals that most of the companies sampled pay dividends between December and March. We recommend that companies should have an optimal dividend policy as this have been proven to increase firm value. We also recommend that firms should announce dividends around December to March to counter the end of year effect that usually suppresses stock prices.

The Impact of Dividend Policy on Stock Prices: Evidence from Nepalese Banking Sector

“…However, this study is limited to 10 years and only the chosen banks and expanding the time frame and number of banks could produce different results (Kandpal & Kavidayal, 2015). Radikoko and Ndjadingwe (2015) carried out research to investigate the impact of dividend pay-out on stock prices in Botswana's equity market. The study found a direct relationship between dividend announcements, ex-dividends, volume of stock dealt, and the share price in Botswana.…”