Relationship Between the Dividend Payout and Firm’s Profitability: A Study in the Oil Sector of Pakistan

Abstract

Many researchers have considered the issue of dividend policy over many other factors of profitability namely; profit margin, return on sales, return on assets, return on equity and return on investment however the motive of our study was to focus on the dividend payout ratio which is the one aspect of dividend policy over two main profitability ratios i.e. Return on Asset and Return on Equity therefore with the consideration of these factors this study derived the relationship between the dividend payout ratio and profitability nevertheless the impact of dividend payout ratio over return on asset (a component of profitability) is also derived. Moreover, the data of the listed oil sector companies of Pakistan is undertaken and the regression and correlation tests are applied on the variables to check the relationship and impact on each other besides the result showed that dividend payout ratio is the critical component which affects the performance of the firm since it is identified in our study with the R square of 0.18. Therefore, considering the result of this study it is said that the oil sector companies must pay attention to their dividend policies seeing as it affects the firm’s performance.