A STUDY ON DIVIDEND POLICY AND ITS IMPACT ON STOCK PRICES OF SELECTED COMPANIES WITH REFERENCE TO BSE SENSEX 100
Keywords:Dividend policy, stock price, high dividend yield, low dividend yield, no dividend yield, gross profit margin, earnings per share, dividend per share, dividend payout ratio, return on equity, retention ratio .
Companies are uncertain between paying a high, minimal and no percentage of their profits as dividends to its shareholders or retaining them for future investments. Since companies must balance the competing interests of different shareholders, the dividend policy they select may have a positive or negative impact on the company’s stock price. This study examines the impact of dividend policy on stock prices. Objective of the research is to determine if there is any relationship between dividend policy and stock prices. The study calculated dividend payout percentage for all 100 companies in the index. From the obtained values, companies fall under the dividend payout percentage ranging from 0% -10% is considered as No dividend yield stock, 11% - 20% as Low dividend yield stocks, 21% and above is as high dividend yielding stocks. Therefore 16 companies listed under Bombay Stock Exchange SENSEX 100 index is selected as the actual sample for a period from 2008 to 2020, classifying 8 companies as High dividend yield stocks, 4 companies as Low dividend yield stocks and rest 4 companies as No dividend yield stocks. Multiple linear regression is the statistical tool used for analysis, considering stock price as dependent variable and gross profit margin, earnings per share, dividend per share, dividend payout ratio, return on equity, retention ratio as independent variables. Regression results witnessed that there is no correlation between Return on stock and Return on dividend at 5% significance level. Return on stock is independent of Dividend yield on stock. The price movement of the stocks is no way related with the magnitude of Dividend declaration. Hence there is no impact on Stock prices on declaration of Dividend policy by the company.